Consumers complain about tip fatigue, but as base pay rises, gratuities are a smaller piece of the pie at sit-down restaurants.
Tips have long made up the bulk of restaurant servers’ pay. And for years, as minimum wages stood stagnant, the workers who depend on tips attached greater importance to them. Now the residual effects of the pandemic, rising minimum wages, and state tipping laws have combined to make tips a shrinking piece of the wage pie for these employees.
ADP Research analyzed a sample of almost 100,000 hourly employees at full-service restaurants in 50 states, people who work for both wages and tips. We tracked individuals who held the same job for at least 12 months and measured any change in their pay.1We considered only workers at establishments classified as full-service restaurants based on their six-digit North American Industry Classification System (NAICS) designation (722511).
Trends in full-service restaurant wages
Nationwide, as of September 2024, median pay for these full-service restaurant workers was $23.88 an hour including tips and base wages. That’s up from $18.61 an hour in January 2020, a 28 percent increase.
The pandemic and tip credits
Counterintuitively, base pay spiked twice during the first year of the pandemic. Those spikes came about thanks to tip credit laws.
Most states allow restaurant owners to take a tip credit—that is, apply the value of a worker’s tips toward the employer’s minimum wage obligation. Tip credits give employers the freedom to pay certain workers far less than minimum wage, as low as $2.13 an hour in some states, as long as the employee’s tips are sufficient to make up the difference.
The system typically works in the employers’ favor. But when tips fall dramatically, or vanish altogether, restaurants must raise base pay for servers and other tipped staff.
This is exactly what happened in 2020 and 2021.
Base wage growth during the hot labor market of 2022
Tip credit laws and falling tips caused base wages to spike twice during the first year of the pandemic. Both times, base wages dropped back to pre-pandemic levels, meaning these spikes in base wages from tipping laws can’t explain the 35 percent increase in wages from January 2020 to September 2024. So what does?
The rising minimum wage
As the U.S. economy emerged from the pandemic, some of those base pay increases stuck. At the same time, a national push for higher minimum wages gained new momentum. As a result, wages for full-service restaurant workers returned to their pre-pandemic levels by early 2021, pushing year-over-year wage growth to more than 10 percent by March 2021. By May 2021, wages had exceeded pre-pandemic levels.
Wage growth for these tipped workers remained elevated through most of 2022, when restaurants were coping with a labor shortage. As the labor market cooled in 2023, wage growth cooled as well, but the gains workers made during 2021 and 2022 have been baked into the market. As of September 2024, base wages made up 43 percent of restaurant worker pay, up from 35 percent in January 2020.2For expedience, we report tip share as the ratio of median tips to the sum of median tips and median base wages since we already had those calculated before deciding to report tip share. Yet the ratio of medians is not in general equal to the median of a ratio. Nevertheless, we checked this measure against median tip share and found that both levels and trends are similar.
As more states increase minimum wages for tipped workers, that makes restaurant worker pay more predictable, which might reduce economic uncertainty for these workers. Yet it also could eat away at full-service restaurant demand as menu prices rise and customers look for ways to lower their bills, such as reducing their tip. It’s an open question how these dynamics will shift the balance of tips vs. base wages for full-service restaurant workers.
A tale of 10 cities
ADP Research looked at wage growth between January 2020 and September 2024 for full-service restaurant workers in 10 metropolitan areas3Specifically, metropolitan statistical areas..
Restaurant workers in New York and Boston had the highest tipped wages, at $22.03 and $21.44 an hour, respectively. Tips accounted for 76 percent of total wages in Boston and 67 percent in New York. Washington, D.C. had the highest tip share at 81 percent.
Workers in Los Angeles-Long Beach and San Jose-San Francisco earned the highest base wages at $17.12 and $18.67 an hour, respectively, as well as some of the lowest tip wages.
