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“Tip credit” could affect local restaurants and employees

Server taking order
Server taking order

TipCredit_071410Mixdown.mp38.21 MB
It’s an election year and one of the issues currently being discussed is the possibility of lowering the state’s minimum wage for servers working in restaurants. The hospitality industry is the major economic driver in Cook County and a minimum wage change could impact local businesses and employees. WTIPs Jay Andersen has this story.
Minimum wage workers who receive tips would have that hourly wage rate cut by more than half if Minnesota adopted “tip credit” legislation. The issue of dropping the wage floor for servers and bartenders has been floated by two gubernatorial candidates so far.
The argument in favor is that the so-called “tip credit” would help employers hire more people or pay other non-tipped employees higher wages because they would be paying their tip earning employees less. Restaurant, hospitality and lodging associations, also point out that lower wages would make the state more attractive to restaurant chains looking to expand. The argument against is that you can’t make a living at $2.13 an hour plus tips. Local server Mary Kate Weyrens:
Mary Kate: Most definitely if my wage were cut there’s absolutely no way that I could make a living serving. It would essentially reduce peoples’ wages to something that would not be livable.
Federal law allows states to drop their minimum wage for tipped employees to $2.13 per hour. Minnesota is only one of seven states prohibiting employers to pay less than the state’s minimum wage, which is $5.25 for businesses with an annual gross under $625,000. For larger businesses the Minnesota minimum is $6.15.
Would lowering the minimum wage help or hinder the level of service a restaurant could provide to its customers? Local restaurateur Judi Barsness:
Judi: I think all of us whether you’re Chez Jude or Birch Terrace or Gunflint Tavern or My Sister’s Place or The Angry Trout, Dockside, all of us, or one of the resort restaurants. We are all striving to give a high-quality dining and service experience. I think that can be diminished if the wage level of the people that are your front end people that are right there with your client and your guest giving them that high-end service experience, I think that can be diminished just by morale to have a lower wage.
The median wage for waiters and waitresses in Northeastern Minnesota is $9.57 per hour including tips. Depending on a number of seasonal variables, at that rate a server in the Northeast could expect to earn just under $20,000 in a year – 40 hours a week, 52 weeks a year. To put this in perspective, according to the State Demographer’s office the per capita personal yearly income in Cook County is $34,813.
According to an official at the Twin Cities union representing hotel and restaurant workers, only a small fraction of servers receive any extra benefits such as health care coverage. Also, because 80% of diners pay with credit cards, the days of not reporting cash tips are long gone. Mary Kate Weyrens:
Mary Kate: You know, the old idea that servers are bringing in all kinds of cash that goes unreported is really no longer the case.
Endorsed Republican candidate for Governor, Tom Emmer first proposed the tip credit on July 5. Shortly afterwards, Independence Party candidate Tom Horner supported a phased-in version of the idea. DFL candidates Mark Dayton and Matt Entenza have criticized the tip credit.  Margaret Anderson Kelliher countered with a proposed across-the-board increase in the state minimum wage.
Judi Barsness thinks there’s a better way to help small restaurant business rather than reduce their employees earning power:
Judi: We are required to pay taxes on the tips that our servers earn from the guests. The wage that they earn from our customers, we are required to pay payroll taxes on that, Medicare. It increases the size of our payroll, so that impacts the amount of workman’s compensation insurance that we have to carry and pay for, it impacts the amount of unemployment compensation that we have to pay. My feeling is if they truly want to help small business owners in the restaurant industry, and impact them in a positive way so that they can increase wages or they can provide benefits or they can hire more people and create more jobs, then that is the area where they need to be looking at changing some laws and not in the minimum wage.
According to the Rochester Post-Bulletin newspaper, in 2007 Gov. Tim Pawlenty vetoed an increase in the state minimum wage because the proposal did not include the tip credit.