Back in July, 2010, during the last gubernatorial primary season, Republican candidate Tom Emmer set off a firestorm by suggesting that Minnesota revise its labor laws regarding tipped employees. There were more than a few things wrong with Mr. Emmer's approach. First and foremost, his proposal was not part of a discussion to increase the minimum wage. It was simply a proposal to roll back compensation for a significant number of hardworking Minnesotans. Second, he chose to make some claims about tipped employees that, while true in extreme circumstances, were by and large misinformed. Paramount among them was the claim that Minnesota servers could expect to enjoy six figure incomes while working part time. While that might be true for a very select few, it is certainly not the case for the vast majority. It was sort of akin to saying that all CEO's make hundreds of millions of dollars a year. I am the CEO of our corporation, and I can tell you that the five figure salary I pay myself is generally less than the earnings of the majority of our servers and, based upon an hourly wage extension, is roughly equivalent to what we pay our dishwashers.
Countering the Republican claims, the DFL rolled out their own message during a press conference featuring a woman who claimed to be a server at an establishment in the airport. She was bemoaning the fact that she was making only half as much money as the Republican candidate had claimed. I guess we were supposed to feel sorry for her because she was earning $50,000.
For those of us running restaurants, the whole episode seemed liked theater of the absurd. Here we have a bunch of politicians and wonks attempting to propose labor policy for an industry about which they have little or no pertinent knowledge. Certainly, they couldn't have any firsthand experience running a fine dining restaurant such as ours, or neither side would have been so blatantly wrong in the way they approached the issue.
At any rate, when Mr. Emmer got done extricating his foot from his mouth, it became apparent that any sort of relief for our industry via the oft maligned phrase "tip credit" would not be forthcoming, and those two words would no longer be spoken side by side by those of us seeking to achieve that goal.
By way of full disclosure, I am a member of the St. Paul Area Chamber of Commerce Board of Directors proudly representing the left wing. In discussions with both the SPACC and the Minnesota Chamber of Commerce, it was suggested that I petition to testify before the State Legislature concerning the proposed amendment to H.F. No. 92 which establishes the state minimum wage. However, prior commitments requiring my presence at the restaurant made that impossible for me. Consequently, I am laying out my opinion on the bill in this blog in hope that it might help inform the discussion.
The current state minimum wage is $5.25 per hour for small businesses which are defined as those businesses generating revenue of no more than $625,000 per year exclusive of excise taxes at the retail level that are separately stated. Large businesses, which are everyone else, are subject to a rate of $6.15 per hour. Keep in mind that that $6.15 per hour rate is moot since the federal rate is $7.25, and we are bound by law to meet that.
Here's where I usually make a statement that gets me into trouble with my more conservative, free market friends. The fact of the matter is that the federal minimum wage is a joke. The only thing it's good for is to establish a base rate for tipped employees or to serve as a defacto training wage for paid student interns. No one I know in my industry pays minimum wage to their hourly employees. It is impossible to attract quality labor and stay competitive in that regard or to retain those people once they are fully trained and have established some sort of seniority. Why would any smart employer engage in constantly turning over staff that would need to be retrained time and again instead of just retaining their best employees? It makes no economic sense, and it is operationally unsound.
At Heartland, our low end of the hourly wage scale is $13 per hour while the high end is $16 per hour. It makes no difference what the job description is, but it is instead based upon the value that the individual brings to his or her job. Consequently, there are times when the dishwashers are making more money than some of the cooks. The bottom of the salaried employee scale is right around $40,000 while the top is right around $50,000. Salaried staff work an average of 50 hours per week, which pretty much sets their compensation in a range that is equivalent to what the hourly folks are getting paid. In addition, we hand out end of year gifts and bonuses to everyone, the amounts of which are determined by pay rate. It's not what you think. The people making the least amount of money receive the largest bonuses. It is as egalitarian approach as we were able to achieve based upon our available resources.