How Prop. 138 would change tipped workers' pay in Arizona

When Arizona’s minimum hourly wage goes up to $14.70 on Jan. 1, 2025, tipped workers could see their hourly rate go down if voters approve Proposition 138.

Under the “Tipped Workers Protection Act,” tipped workers would make 75% of the minimum wage, or around $11.02 an hour. But the act also stipulates that employers would have to pay the difference if a worker’s tips and subminimum tip wage don’t add up to $2 over the prevailing minimum wage, meaning they would be making $16.70 an hour, according to the proposition’s architect Arizona Restaurant Association.

That sounds good on paper, critics say, but they say it’s a blow to tip workers, from restaurant servers and bartenders to hotel workers and nail salon techs.

“When we look at the data of tip workers, we know that 70% are women and tip workers don’t make very much,” said Geraldine Miranda, an economic policy analyst with the Arizona Center for Economic Progress. “You look at their real median wage, they make about $15.78 (hourly) and when you look at the cost of if living, it’s very high. This proposition is an automatic wage cut for tip workers.”

Arizona Center for Economic Progress works with advocates, policymakers and communities to advance policies that improve economic opportunities for all Arizonans, according to its website.

Tucson restauranteur Grant Krueger, whose Union Hospitality Group owns and operates three restaurants in St. Philips Plaza and The Maverick country night club, said Proposition 138 is a win-win for restaurants and tip workers.

Restaurants get a little breathing room from the yearly jump in the minimum wage while workers have more job security; labor cost increases have historically led to job cuts, he said.

“The one size fits all minimum wage model approved in 2016 doesn’t apply well to restaurant compensation,” he said, noting that profit margins for restaurants are between 3 and 5%. “In the last few years, we have had to reduce servers in the full-service restaurant model. Wages get so high, jobs get eliminated. That also ends up hurting server and bartender wages.”

Proposition 138 would amend the 2016 voter-approved Fair Wages and Healthy Families Act that allows employers to pay tipped workers $3 below the minimum wage.

The existing law also requires employers to make up the difference if a tipped employee’s combined income falls short of the prevailing minimum.

Krueger, a member of the Arizona Restaurant Association board, said he has never, “in 25 years, had to make up the tipped difference to get them to the full wage,” adding that several of his top servers average $40-$70 an hour.

The National Restaurant Association reported that tipped workers nationally make an average of $27 an hour, which critics of Proposition 138 point out is far higher than the $17.53 national rate reported by the U.S. Bureau of Labor Statistics.

The Labor Bureau, in its state-by-state breakdown, showed Arizona tipped workers in the restaurant sector make significantly more, with bartenders averaging $24.46 an hour and servers $23.60.

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Longtime Maverick bartender Jill Birnbaum said she averages $40-$60 an hour with tips. She said she supports changing the tip law and taking a cut in her hourly rate to preserve the tip wage system.

“I think (Proposition) 138 is closer to what we are already doing and it works pretty good,” she said.

“I would much rather have a lower hourly wage than a standard wage that eliminates tips,” said bartender Alexis Reinacher, who said she averages $25 to $30 an hour with her tips working at Krueger’s Union Public House, 4340 N. Campbell Ave., one of the three St. Philips Plaza restaurants.

Birnbaum and Reinacher were referring to a proposal by One Fair Wage, an out-of-state organization that tried unsuccessfully to get a proposition on the November ballot that would have eventually eliminated the tip income credit and raised the state’s minimum wage to $18 an hour. The group pushing that plan failed to turn in the required valid signatures to get it on the ballot.

Arizona Restaurant Association lobbied the Legislature to put Proposition 138 on the ballot in response to One Fair Wage, Krueger said.

But tipping is optional, which makes tip income fluid and unreliable, especially at smaller restaurants like Tucson’s iconic Ajo Cafe, 3132 E. Ajo Way.

“Tipping is voluntary; it’s up to them how much they want to leave or can leave,” said Max Cano, whose family has operated the 72-year-old cafe since 2006. “We don’t know what their situation is.”

Ajo Cafe’s Liseth Maytorena said the restaurant guarantees workers from the time they are hired that they will make at least minimum wage.

“We want to make sure that our servers are taken care of,” she said, a sentiment that also applies, she said, to the community that supports the restaurant.

“Every year that the state minimum wage goes up, the subminimum will be lowered,” noted economic policy analyst Miranda. “The gap between the minimum and the subminimum will increase ... and tip workers are going to have to rely more on tips to make up that difference. There is no guarantee the tips will go up.”

Kreuger said he has no plans to cut his workers’ hourly rate should 138 pass.

“We already have told our staff we wouldn’t take your wage backwards in any capacity; we would just leave it what it is now,” he said.

But Miranda said that is likely not going to be the case with most restaurants and businesses that rely on tip workers.

“We’re asking workers to take a wage cut when the they can’t afford to live,” she said. “Restaurants are facing price pressures and so are workers. The best solution is not to ask workers to take a cut in their wages.”