Consider tip credits when raising minimum wage

  • Article by: JAMIE ROBINSON
  • Updated: January 31, 2014 - 6:50 PM

For businesses like restaurants, raising the minimum wage would be regressive and hurt some of the workers.

 

We need to have a serious conversation about the minimum wage. I co-own a restaurant in south Minneapolis. Not a single employee makes less than $9 an hour. Yet an increase in the minimum wage would greatly impact our business. Not only that, but it would impact our employees, regressively.

The vast majority of servers in Minnesota restaurants earn $7.25 an hour, plus tips. Evidence suggests that the American tip culture is here to stay. Restaurant owners build their business models around this fact. It affects drink and food pricing, menu offerings, and, yes, wage structure.

How would a minimum-wage increase on restaurants be regressive? With tips, our servers earn $20 to $30 an hour, which is taxed as ordinary income. By law, we are required to pay $7.25 of that. Those total earnings are more than the managers’ salaries. Servers are the highest earners in the restaurant. In contrast, our kitchen staff earns $9.50 to $12.50 an hour. Any wage increases we can afford always go to management or to the kitchen staff. Forcing our business to increase wages for our highest earners would divert money that otherwise would go to kitchen employees and put it into the pockets of our highest earners. That’s regressive.

The 2011 Minnesota Department of Labor study on the minimum wage shows that 122,000 hourly workers are employed in “eating and drinking places” and that 42,000 of them earn minimum wage — and 53 percent of those earn tips. That is a lot of people to subject to a regressive wage increase.

During the minimum-wage debate last legislative session, we contacted Rep. Jim Davnie, DFL-Minneapolis, to urge him to support a tip credit (counting tips as part of servers’ wages) along with any minimum-wage increase. The tip credit that we support would keep the current $7.25-per-hour wage for restaurants. If the server doesn’t earn at least $12 an hour during a shift, with tips included, the restaurant would pay the new minimum wage for those hours.

Davnie’s e-mailed response was: “As you know many tipped employees work part time, meaning that while their hourly wages maybe appear high they still fall short of the income one [may] expect off of simple math.”

We try to hire as many full-time employees as possible; we think it’s good for our business. Unfortunately, full-time servers are in short supply. This is because many choose to work as servers because they are students or it’s their second job. Because server hours are flexible, they can work a few part-time hours, remain free to accomplish other priorities and still earn enough to make ends meet.

Minnesota is one of only seven states to not allow a tip credit. This artificially puts downward pressure on kitchen wages. If Davnie would apply his “simple math” to actual reality, he would realize that he and his colleagues are promoting a regressive policy.

It only makes sense that if tips are taxed as earnings, they should also be treated as earnings when increasing the minimum wage.

 

Jamie Robinson is co-owner of Northbound Smokehouse & Brewpub in Minneapolis.

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