The Minimum Wage Doesn’t Apply to Everyone

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This week marked the four-year anniversary of the last time Congress increased the minimum wage — from $5.15 in 2007 to $7.25 in 2009. Groups demonstrated across the country, demanding increases at both the state and federal level. President Obama pledged that he would continue to press for an increase in his economic policy speech at Knox College.

But there’s another problem: Millions of working Americans make less than minimum wage. In fact, more Americans are exempt from it than actually earn it.

The Pew Research Center examined Bureau of Labor Statistics data and found that about one and a half million Americans earned the minimum wage in 2012, but nearly two million people earned an hourly wage that was even less than $7.25 an hour. These workers, for one reason or another, are exempted from the part of the Fair Labor Standards Act (FSLA) that requires employers to pay at least the minimum wage, and include tipped workers and many domestic workers, as well as workers on small farms, some seasonal workers and some disabled workers.

The largest of these exempted groups is tipped employees, many of whom work in food service. Today, tipped employees earn just $2.13 an hour — the rationale being that tips cover the rest. In fact, some of these workers do earn a reasonable living through their tips, but, as Saru Jayaraman, co-founder and director of the Restaurant Opportunities Centers United, told us, many don’t.

“Imagine your average server in an IHOP in Texas earning $2.13 an hour, graveyard shift, no tips,” she said. “The company’s supposed to make up the difference between $2.13 and $7.25 but time and time again that doesn’t happen.”

The Obama administration proposal laid out in the State of the Union calling for $9 an hour also called for an increase in the minimum wage for tipped workers, and for that increase to be indexed to inflation. At the moment, the minimum for tipped workers has not changed for 22 years, because, in 1996, Congress detached tipped worker wages from the normal minimum wage at the bidding of the National Restaurant Association — a powerful lobbying organization headed, at the time, by Herman Cain. This leaves millions of tipped workers — a group that is mostly women — living in poverty.

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Tipped workers, including many restaurant employees, are among those exempt from minimum wage. In this March 3, 2012 photo, George's restaurant employee David Lopez works on filling a customers order, in Waco, Texas. (AP Photo/Tony Gutierrez)

Another large subset of American workers exempted from both minimum wage and overtime pay is domestic workers who provide “companionship services.” The actual duties of these workers range from providing medical care to the disabled and the elderly to helping with basic tasks like eating, dressing and bathing, shopping, transportation and cooking.

The “companionship” exemption was first created in 1974, when the FSLA was extended to cover domestic workers. At the time, in-home caregiving was a relatively small industry. But it’s grown; in 2011 the National Employment Law Project estimated that about 1.7 million Americans fell under the exemption. On Tuesday, hundreds of domestic workers rallied near the Department of Labor headquarters, urging newly confirmed labor secretary Thomas Perez to take action and extend to them the same workplace protections almost all other Americans enjoy. Vice President Joe Biden expressed his support for doing so last month, as did Obama in 2011.

Three and a half million workers make either minimum wage or less than it — that’s at most $15,080 a year, well below the poverty line for a family of two — and millions more Americans make something only slightly above it. Raising the minimum wage to $10.10 by 2015 , as many of the protests this week urged, would mean higher wages for the 21.3 million Americans who make less than that. The Economic Policy Institute blog reports that it would create a ripple effect, leading to higher wages for a total of 14.2 percent of all U.S. workers, creating a mild economic stimulus, helping to close the gender pay gap and decreasing income inequality.

Economic Policy Institute.

Recent polling has found that the majority of Americans, regardless of political party affiliation, support an increase to $10.10. And if Congress makes the (what seems at the moment unlikely) decision to take action and raise the minimum wage, pulling millions out of poverty, they should also reexamine the loopholes that exclude some two million American workers from the minimum.

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  • Anonymous

    There are always loopholes. And notice, the exceptions to earning a decent living apply exclusively to the poor.

  • Anonymous

    This is just one of myriad examples of how the wealthy have rigged the system so that as little as possible of the profits generated by the hard work of honest individuals goes to a small number at the top rather than being shared by those through whose efforts those profits were generated. Not only that, but they receive much more in equivalent government welfare through the subsidization of food and medical needs of their employees by the government. The minimum wage is a form of corporate welfare as it currently stands and needs to be raised. If it were the entire economy would benefit.

  • Maddiemom

    I worked as a waitress in college, and ever since have been as generous as possible to servers. ( and, on very rare occasions have not left a tip if the service was very poor when there was no excuse, such as it being very busy. Leaving a penny used to be the way to point this out, but now I usually leave a brief, polite note). I can remember earning fifty cents an hour in the late sixties. I thought then, and have continued to think that it was unfair for restaurant owners to expect the customers to pay for their service, as well as their meal. To give the bosses at least some credit, you usually got a meal with your shift. OK for college servers, but for adults trying to earn a living, not so much.

  • Lnstarmom

    My daughter works as a waitress to support her two children. If not for chidcare and housing provided by my husband and I she would be unable to make it. Her soon to be ex husband is a waiter and provides little support for his children.

  • AF Retired

    Minimum wage should have been indexed long ago. It should never require congressional votes and be a political motivated issue. Just set it to a reasonable (I say living wage) and index it for increases like Social Security.

    I am really glad Baltimore? would not allow Walmart to build without following the labor laws on wages there. Remember when everyone said bars and restaurants would all close without smoking? Has not happened. In fact, I don’t ever remember seeing so many eat out and waiting so long or tables.

    My biggest beef with Walmart is how they cap hours just under eligibility for health care. Since it still requires the employee to pay a lot of money for the insurance, most could not afford it anyway. But this nasty tactic is disgusting.

    America works best when we establish the parameters and regulations that corporations must work within. It is a. Cooperative relationship when working. Corporations will not just naturally protect employees rights and benefits (ie. all the steel companies, Kodak and the list goes on.).

    This is why I believe retirement and health benefits should never be tied to a company. The opportunity and likelihood of abusing it is very high.

  • John Bailo

    Barack Obama recently gave a speech on the problem of economic inequality that his administration designed to demonstrate a sea change in attitude from merely patching up a broken System, to remaking it…the promise that got him elected in 2008.

    However, if he wants to stay true to his own words, he has ample change to demonstrate his sincerity. In February 2014, he has the opportunity to appoint a new Chairperson of the Federal Reserve. No person is more important, or significant in the use and distribution of money, than that Chairman.

    Obama can follow one of two traditional paths. He can choose to add a fourth member to the troika of Volker-Greenspan-Bernanke and continue their policies of trickle up wealth, through constant inflation of the basic goods of living like housing, food and automobiles…never allowing the middle class person to move from debt to wealth. He can appoint an elderly Democrat operative, as he has done so many times before, who will little change the system except to make it slightly less oppressive.

    Or. He could live up to his words and finally take the bull by the horns and come up with an appointee who is going to break the back of the ruling junta that has stolen the land, jobs and wealth of middle class and poor Americans for the last 3 decades and finally change the system.

  • Anonymous

    The low minimum wages allowed by the labor laws for tipped employees is a crime. People who wait on tables work hard for their money (wages) and it’s wrong to make them depend on the customer to live. Also (for the customer), if you can’t afford to leave a tip, you can’f afford to eat out.

    I disagree with the tax laws that require those receiving tips to pay taxes on them. Tips are gifts for service, usually good service. Seems the tipped workers got screwed in the early 1980s when tips started being taxed and interest paid on credit card accounts was not allowed to be deducted. Reagan’s pals sure stuck it to the little guy.

  • Anonymous

    The minimum wage must be raised GLOBALLY to the equivalent of $15 an hour. It’s impossible even to provide bare necessities for less.

    But it won’t work unless workers all over the world get the same.

    A global economy without global labor standards is doomed to be a plantation of slaves and feudal corporate lords.

  • peace 276

    if the government would lower taxes and people who rent the houses out would lower there prices and quit being greedy electricity should be less expensive as well as all other utillities then people would be well off with the wages that are in place right now not to mention the global industrial companies who have enough money to save the world but cant give a little to help other people greed is what is going to finish off the human race its all about the dollar right if everyone could take a lesson from oh lets say john lennon or janis joplin or other people who can see beyond themselves and there own selfishness and just give a little to help other people the whole world would be a damn fine place

  • Anonymous

    Cry me a river, most tipped employers only claim just enough of their tips to “make minimum wage”, and pocket the rest. I’ve worked in more than enough restaurants/bars to know that scam. As for the rest, either develop a marketable skill set, or go into business for yourself, nobody forces you to work for minimum wage, you do. Raise the federal minimum? Why? All it’s doing is reward mediocrity, and make everything cost more for everyone. You don’t deserve a living wage, you earn it.

  • Terri EC Mom5

    Amen to that. Corporations are not inherently benevolent, they never have been. If they were, workers never would have needed to form unions.

  • Terri EC Mom5

    Thanks Reagan republicans. I think that trickle down economics just ran down my leg. LOL

  • Anonymous

    “And if Congress makes the (what seems at the moment unlikely) decision to take action and raise the minimum wage, pulling millions out of poverty”

    You think $10 an hour is going to lift people out of poverty? LOL

    You cannot lift people out of poverty with minimum wage increases. You lift them out of poverty by educating them so they can perform jobs that get them a higher wage.

  • bucklaw

    If Democrats were Democrats and Labor was Labor those who receive less than minimum wage would seek protection under the 14th Amendment. Use the courts just as well as Republicans.

  • Emma

    Honestly, if the employee kept adequate records of his or her hours worked and tips earned, it would be easy to pursue this. Most don’t even notice or care, at least in my experience.