Uber Adds a Tip Option

Lost in the extensive coverage of Travis Kalanick’s resignation is the news that Uber is adding an in-app tip option.  According to the Washington Post, the option is already available in Houston, Minneapolis, and Seattle, and should be part of the app nationwide by the end of July.  The move comes on the heels of the Independent Drivers’ Guild’s successful effort to have New York’s Taxi and Limousine Commission propose an in-app tip option requirement in New York City.  Uber has styled the new policy part of its “180 Days of Change” – a campaign that Uber described this way in an email to drivers:

For the next 180 days (and beyond), we’ll be making meaningful changes to the driving experience. Some changes will be big, some will be smallーall will be changes drivers have asked for.

Why now? Because it’s the right thing to do, it’s long overdue, and there’s no time like the present. This is just the beginning. We know there’s a long road ahead, but we won’t stop until we get there.


Where Tips End and Wages Begin

One year ago, this blog featured a post that outlined various reasons why the restaurant industry’s use of tips in lieu of guaranteed wages had come to provoke, in the author’s words, “a firestorm of criticism”: that reliance on tips as a significant component of server take-home pay 1) destined many servers to earning a sub-minimum wage; 2) encouraged female servers to tolerate sexual harassment by their customers; and 3) resulted in pay discrimination unrelated to the quality of servers’ work, a consequence of customer biases and their impacts on the amounts tipped.

Since the post’s publication, this firestorm has continued unabated. In fact, Uber even pointed to customer bias as a reason not to add a tipping function to its ride-sharing app, as its competitor Lyft has done. Moreover, recent modeling by FiveThirtyEight illustrates the volatility of tip-based incomes in the restaurant industry, as well as divisions between different classes of restaurants vis-à-vis the tipped amounts that their servers typically earn, which further underscores the question whether tipping can serve as a reliable substitute for set pay.

In this vein, a recent opinion out of the U.S. Court of Appeals for the Tenth Circuit sheds new light on the shortcomings of tipping as a reliable form of compensation, highlighting the dangers posed to employees by the liminal space between “tips” and “wages” under the Fair Labor Standards Act (FLSA).

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What’s the Deal with Tipping?

The institution of tipping has recently evoked a firestorm of criticism. Opponents of tipping point out that many servers earn below minimum wage; that servers, particularly women, often tolerate sexual harassment for the sake of earning better tips; and that tipping is rife with racial and other biases. In response to these criticisms, a handful of restaurants have abolished tipping entirely. Others have replaced it with auto-gratuities (which, due to a new IRS rule, may be on their way out); still others require servers to pool their tips. These piecemeal attempts at reform are unlikely to have a widespread impact, and raise potential problems of their own. This all invites the question – what’s the deal with tipping?

Minimum Wage (or Lack Thereof)

Federal law does not require employers to pay tipped workers the full federal minimum wage. Section 3(m) of the Fair Labor Standards Act (FLSA) permits employers to take part of an employee’s tips as a credit toward its minimum wage requirement. Employers are required to provide a minimum cash wage of $2.13, known as the tipped minimum wage, but may “credit” up to $5.12/hour of an employee’s tips towards meeting the federal minimum wage of $7.25/hour. This is known as a “tip credit.”

Policies are not uniform across states. Some states require employers to pay workers above the federal tipped minimum wage of $2.13/hour, but still permit a tipped minimum wage – ranging from the negligibly higher rate of $2.23/hour in Delaware to $7.75/hour in Hawaii (Hawaii’s state minimum wage is $8.50/hour). A smaller but not insubstantial number of states require employers to pay tipped employees full state minimum wage. A full breakdown of state minimum wage requirements is available here.

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Today’s News & Commentary — February 25, 2016

On Tuesday, the Ninth Circuit upheld a 2011 Labor Department rule prohibiting businesses from collecting tips given to waiters, casino dealers, or other service employees, to share with support staff, such as dishwashers, according to Politico and ABC News.  This rule applies even if tipped employees are receiving minimum wage.  Seven states have minimum wage statutes that require workers to get the state minimum wage on top of any tips.  In upholding the rule, the court overturned district court rulings in Nevada and Oregon.

The New York Times Magazine takes up “the case for blind hiring” in today’s issue.  GapJumpers, a software company developed a few years ago to facilitate hiring in Silicon Valley focused on coding challenges and other job-related application tasks, and not by the name of an applicant’s college on a resumé.  Now, GapJumpers is turning its focus toward another problem in the tech industry: the lack of diversity.  As companies like Google focus on “culture fit” through long, elaborate interviews, hiring results in a relatively homogenous worker set.  Studies show that how white an applicant’s name sounds impacts their likelihood to get an interview.  GapJumpers’ solution provides a method to screen job applicants without showing employers any biographical information.  In its early tests of the program, GapJumpers conducted 1,400 auditions for big companies, and whereas only about one-fifth of applicants who were not white, male, able-bodied elite school graduates made it to a first round interview using the traditional hiring methods, using blind auditions, 60 percent did.

Lydia DePillis at the Washington Post discusses the implications of the rise in high-wage employment since 2013.  A recent report by Goldman Sachs pronounced this trend, echoing a report produced by the Department of Labor in October.  As DePillis explains, this renewed growth is generally a sign of economic recovery, following growth in low-wage retail and restaurant jobs, and increased consumer activity.  Some economists are less optimistic, however.  People are still mostly making less money than they were before the recession.  Additionally, a large part of the labor force has been left out of the job growth: middle-wage jobs in fields like manufacturing have disappeared and have not been replaced.

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Today’s News & Commentary — January 14, 2016

Following President Obama’s State of the Union address on Tuesday, Politico took a look into one policy proposal in particular: wage insurance. This is not the first time President Obama has made this suggestion; wage insurance was included in a 2011 jobs bill and again in a job retraining package Obama offered in his 2012 State of the Union address. The 2012 scheme focused on workers ages 50 and over, and provided that wage insurance would compensate workers who lost their jobs and found new ones that paid less (as long as the new salary was less than $50,000). Generally, wage insurance is thought to provide an alternative to job retraining, supplementing lower salaries for people who have lost their jobs and found new ones.

Lydia DePillis at the Washington Post analyzed the drop in union density over the past few years, and its impact on the American middle class. According to a Center for American Progress report, the decrease of union coverage accounts for about 35% of the declining size of the middle class. The study shows that lower union membership leads to fewer people earning stable, middle-class incomes. Critics argue that studies like this confuse correlation with causation, but CAP senior fellow David Madland argues this study is especially effective at proving causation, and that lower union membership renders unions less able to pull people up into the middle class.

Another celebrity chef has joined the no-tipping movement: David Chang, founder of Momofuku, the famous New York noodle bar, and its affiliates. A couple of months ago, the New York Times reported that Danny Meyer would begin a “hospitality included” policy in 13 of his New York restaurants and bars. You can also read Professor Sachin Pandya’s take on some of the merits of a no-tipping policy in his November guest post here.   Now, according to the Huffington Post, Chang is implementing a no-tipping policy in his new Manhattan restaurant Nishi. He explained in his magazine earlier this week, “Bottom line is we want to pay sous chefs, cooks, and dishwashers a living wage.” He went on to say, “And if it doesn’t work, we can always go back to the old way.”