By: Renee Morgan, Social Justice Strategist
What is a Subminimum wage?
A “subminimum wage” is a wage that is less than the state or federal mandated minimum wage. Federal law allows companies to pay the subminimum wage to certain groups of workers, the largest group of which is tipped workers.1 A tipped worker is defined as anyone whose occupation regularly and customarily receives $30 per month in tips.2 Employers of tipped employees are only required to pay $2.13 an hour in direct wages as long as that amount combined with tips equals the federal minimum wage.3 This backstop measure often falls short (more on that below), leaving workers with even less than the already too low minimum wage of $7.25/hour.
The Impact
With a federal tipped subminimum wage frozen at $2.13, these workers can earn as little as $4,430 a year for full-time work, with the remainder of their income solely derived from tips. Although employers are required to ensure that workers are paid at least the overall federal minimum wage of $7.25 an hour, the US Department of Labor reports that 84% of employers investigated violate those regulations.4
Tipped workers in the 43 states that allow the subminimum wage are more than twice as likely to live in poverty and rely on Medicaid than the rest of the workforce.5 These low wages affect a workforce that is majority women and disproportionately includes people of color. The subminimum wage for tipped workers is a legacy of slavery that emerged following Emancipation to exploit recently-free enslaved Black people, particularly Black women.6
Today, the practice of paying workers a subminimum wage and requiring them to rely on tips upholds systemic racism as workers of color earn far less in tips than their white coworkers, due to both segregation of workers of color into more casual restaurants and customer bias in tipping. For example, Black women earn only 60 percent of what white men earn in the same hosting positions.7
Ending the Practice
At Adasina, we aim to make systemic change by taking direction from communities most impacted by systemic inequities, then changing the system from within. In December of 2019, Adasina met with the Poor People’s Campaign to better understand how investors could support movements for economic justice. From their guidance, and subsequent conversations with their partner organization, One Fair Wage, we identified the subminimum wage as a key contributor to economic, racial, and gender injustice.
In May 2020, we built the Investors for Livable Wages coalition and launched a campaign to stop publicly traded companies from paying a subminimum wage and pay all employees the full minimum wage, with tips additionally possible. The campaign launched with an investor statement signed by a coalition of 65 institutional investor groups representing over $300billion in managed assets, making a business case for publicly traded companies to end the practice. We paired this groundbreaking statement with a website providing investors, consumers, and advocates access to data on which companies pay employees the subminimum wage.
What Can Investors Do?
Use Investors for Livable Wages to see if you are invested in companies paying a subminimum wage.
- Institutional Investors: If you hold any of these companies, engage with them and demand they pay a full minimum wage to their tipped employees. Ask the companies to take a leadership role in paving the way for fair wages for everyone. You can also choose to exclude from your portfolio any companies that do not pay a full minimum wage to all employees.
- Individual Investors: Ask your financial advisor to review the site and let them know you want to take action in your investment portfolio.
- Adasina ETF Investors: You’re all set. The Adasina Social Justice All Cap Global ETF (ticker symbol: JSTC) is the first to use this newly available data in our portfolio, so we’re already taking care of this for you. We have chosen to exclude these companies from our fund.
What Can Consumers Do?
Use Investors for Livable Wages to see which companies pay the subminimum wage and:
- Write letters to companies on the list telling them you want them to end this unjust practice.
- Choose to shop, dine, and otherwise give your consumer dollars only to companies that pay all employees a full minimum wage, including tipped employees.
- If you patronize any of these companies, ask to speak to management and let them know you want them to pay a full minimum wage to all employees, including tipped workers.
What Can Advocates Do?
Right now we have the opportunity to end this archaic practice. As of this writing, the American Rescue Plan Act of 2021 is currently working its way through Congress and still includes the possibility raising the minimum wage to $15 per hour for almost all workers, including tipped workers, youth, and people with disabilities who are currently paid a subminimum wage.8 Ending the subminimum wage for good likely lies in the hands of a few key Senators.
Call or write to your senator asking them to support the increase in minimum wage for everyone and not settle for a lower subminimum wage for anyone.
The senators most likely to oppose the wage increase are listed below.9 Contact them and ask that they support an increase to the minimum wage and that it covers everyone, including tipped workers.
- Senator Tom Carper (D-Delaware)
- Senator Chris Coons (D-Delaware)
- Senator Catherine Cortez Masto (D-Nevada)
- Senator Maggie Hassan (D-New Hampshire)
- Senator John Hickenlooper (D-Colorado)
- Senator Mark Kelly (D-Arizona)
- Senator Angus King (D-Maine)
- Senator Joe Manchin (D-West Virginia)
- Senator Robert Menendez (D-New Jersey)
- Senator Jeanne Shaheen (D-New Hampshire)
- Senator Kyrsten Sinema (D-Arizona)
- Senator Jon Tester (D-Montana)
As investors working in solidarity with social justice movements, we have the ability to partner together and end this unjust practice. Join us in this campaign and make a stand for economic, racial, and gender justice.
Endnotes:
- One Fair Wage, “It’s Time to End the Subminimum Wage,” One Fair Wage (2019).
- Department of Justice, Wage and Hour Division, “Questions and Answers About the Minimum Wage,” Department of Justice (2020).
- One Fair Wage, “Worker Misclassification and One Fair Wage: A White Paper on the Perils of Replicating AB 5 in Two-Tiered Wage States,” University of California, Berkeley Food Labor Research Center, One Fair Wage (March 5, 2020).
- Food and Labor Research Center (UC Berkeley), International Human Right Center (UC Berkeley), Restaurant Opportunities Centers United, “Working Below the Line,” University of California, Berkeley, School of Law (December 2015).
- Department of Justice, Wage and Hour Division, “Questions and Answers About the Minimum Wage,” Department of Justice (2020).
- One Fair Wage, Food Labor Research Center, UC Berkeley, National Black Workers’ Center Project, “Ending a Legacy of Slavery: How Biden’s COVID Relief Plan Cures the Racist Subminimum Wage,” One Fair Wage (February 1, 2021).
- Kari, Paul, “Do Americans tip people of color less money?,” MarketWatch (October 31, 2017).
- One Fair Wage, “Full Deal for Full Recovery,” One Fair Wage (January 26, 2021).
- List compiled according to original research by One Fair Wage.