For the “millennial”, (and while opinion differs on the definition age group for the demographic for the purposes of this argument it’s those aged early 20s to early 30s), the degree to which they are misinformed – or oblivious to facts – can be truly stunning.
Let me tell you a story that brings the point I am making into a stark, vivid reality.
I was recently talking with a smart, capable and tuned-in young man in his early 30s (a millennial) about an issue that appears, on the surface, to be both mundane and boring.
He was indignant, angry and disillusioned about the fact that he was only being paid a wage of $2.13 per hour, and expressed great emotion about this fact as “living proof” that the corporate establishment (restaurant companies, big or small) was “ripping off” its workers by paying them only $2.13 an hour.
The wage rate my young friend was decrying is one established by the federal Fair Labor Standards Act. I’m talking about the tip credit. Within the foodservice and hospitality community, ‘tips’ (i.e., gratuities) are both common and substantial; easily 5-10 times greater than the minimum wage, whether federal or differentiated by state. The tip credit allows a sub-minimum wage of $2.13 per hour to be paid to “tipped workers with the expectation that wages plus tips total no less than $7.25 per hour,” the federal minimum wage, or no less than the minimum wage in participating states (not all states allow a tip credit).
I then asked my friend if he earned tips. As you would expect, he said, “Yes,” and validated, by my further questioning, that his tips could average $20 or more per hour.
I then extrapolated total earnings into annualized gross income, and concluded that a full time server (like him) is making around $40,000 a year: $2.13 per hour, plus $17 per hour (net) in tips (servers “tip out” bussers, hostesses, runners and sometimes kitchen workers an average of 15% of gross tips earned), times 40 hours per week, times 50 weeks. And I am being conservative here. I believe the annualized earnings is closer to $60,000-80,000 per year in the more upscale establishments.
My young man was unmoved. He rejected my premise, ignored the unemotional and factual analysis I provided, and will continue to believe that he is being exploited by profit-hungry corporate-types…who are paying him a paltry $2.13 per hour.
In other words: “Don’t bother me with the facts, my mind is made up.”
So, where’s the disconnect between the facts and what this young man believes?
Ah, now, we come to tip reporting. As you would expect, the IRS requires that “all tips be reported using contemporaneous journals” or some similar method. This calculation has become much easier in the last few years due to the fact that a high percentage of guest checks are paid by credit card; thus, the IRS can check factual data to corporate tip reporting compliance.
Ask any server if they report all their tips, and you will get a smile and (usually) the admonition that they apply the minimum reporting threshold – historically, 8% of gross sales – because they know that the IRS is unlikely to check credit card tips against their 1040 filings.
Bottom line: some servers underreport tips regularly, and gain the benefit of huge amounts of their income going untaxed.
How does this tie back to this young man’s belief? I wonder if he underreports his tips, or follows the IRS guidelines?
But, in his mind his “low” annual earnings, as documented by his W2 at year end, is because he’s only being paid $2.13 per hour!
I cannot help but feel (I try, believe me) that a sense of “Millennial indoctrination” is in play here… and it’s working.
Read more on the minimum wage debate
Blog: Tips are not wages