MN Hospitality Advocate

MRA Addresses Tip Credit Discussion

Posted in General Advocacy, Restaurant Issues, Tip Credit by hospitalityminnesota on July 10, 2010

I have been so busy all week addressing the issue Tom Emmer raised with regard to tip credit that I have been remiss in getting the blog post on this very topic constructed.

Campaigns are by nature unpredictable, with issues and candidates thrust into the spotlight seemingly without notice. Earlier this week, Minnesota’s hospitality industry found itself in the middle of the race to replace Gov. Tim Pawlenty. By now I am sure that many, if not all, of you know that during a campaign stop in St. Paul, GOP-endorsed candidate Tom Emmer found himself discussing the issue of tip credit. (Click here for a July 5 article from the Star Tribune and here for a July 6 article from Minnesota Public Radio which depict how the issue has been covered by Twin Cities media). Although as an industry we appreciate the opportunity and attention being paid to the slim-margins we operate on each and every day, the manner in which the issue has been presented has caused the general public to be inundated with a great deal of misinformation.

I spent a great deal of time this week fielding calls from restaurateurs around the state seeking clarification on the required wages for servers and other employees. We have also, through conversations with the media and policymakers, sought to clarify the facts and tell the tip credit story.

As part of a broader discussion of how to best grow Minnesota’s economy, we welcome the opportunity to discuss the issue of tip credit. Our approach has always been to find a “go-forward” solution that does not incorporate take-backs or reductions. Instead, as demonstrated in our Super Wage proposal in 2009, we have sought legislation to level the playing field for all restaurant employees through the creation of a super wage for tipped employees. Click here for our Super Wage issue briefing provided to lawmakers during the 2010 legislative session.

In the midst of the hotly contested race for Governor, it is likely that this issue will gather attention for some time to come. Gubernatorial Candidate Margaret Anderson Kelliher has now seized on this issue and is proposing an increase in the state’s minimum wage. Read her proposal here. Emmer has arranged for a meeting with servers to discuss the issue, covered here.

The Association issued this minimum wage / tip credit statement to help clarify the issue:

First, we want to make it clear that the industry has never advocated for pay cuts. Our position for more than two decades of seeking to accomplish a tip credit has always been a going forward position. In other words, when the minimum wage increases in the future, Minnesota law should allow servers to continue to make what they are presently making, and not subject them to the increase. To be clear, our industry has not advocated reducing server pay at all.

Second, there is a great deal of confusion as to the present rate of pay for servers. In the interplay between state and federal law, the statute that most benefits the employee applies. Federal law says that any restaurant that is grossing above $500,000 per year annually is subject to federal standards. Today, while Minnesota’s minimum wage is $6.15 per hour, the federal minimum wage is $7.25 per hour. Thus, any restaurant grossing more than $500,000 per year annually or whose employees are engaged in interstate commerce is required to pay its servers $7.25 per hour. This covers the vast majority of servers in our state. For those restaurants performing at less than $500,000 per year and whose employees are not engaged in interstate commerce, the Minnesota minimum wage for smaller operations applies, which is $5.25 per hour. Most restaurants in Minnesota gross at least $500,000 per year or have employees engaged in interstate commerce, thus the higher $7.25 wage applies to the vast majority of servers in Minnesota.

There are a few key reasons why this is such a passionate issue for restaurant owners. Because Minnesota statute does not allow for a tip credit (the use of tip income to offset minimum wage), when either the federal or state government mandates a minimum wage increase, the restaurateur is forced to pay what are often the highest paid employees in her or his establishment a higher base wage. This uses up whatever available capital the restaurant has that might pay raises for back-of-the-house cooks, bussers and dishwashers. It does so without even providing an opportunity for the owner and his or her staff to have a conversation about compensation. Thus, minimum wage increases without tip credit create huge disparity between front-of-the-house and back-of-the-house.

Second, tipped employees work for tips and have the opportunity to function as their own entrepreneurs. The restaurant operator provides the facility, the cooks and support staff, designs the menu, provides the ambiance, advertises the business, pays for the light and heat, buys the point of sale system. This creates the opportunity for servers to make substantial income. For the restaurateur to continue to provide this opportunity, reinvest in the facility, offer benefits, and grow, he or she needs economics that work.

Third, tips ARE wages. One of the injustices of present law is that even though their customers give tips to servers, employers must still pay FICA (social security tax) and unemployment compensation taxes on these gratuities. Tips are considered wages for purposes of Social Security (FICA), Federal Department of Labor, Federal Unemployment Taxes (FUTA), Internal Revenue Service, Minnesota Workers’ Compensation, Minnesota Unemployment Compensation (SUTA) and the Minnesota Department of Revenue. The only instance in which tips are not considered wages is by the state when determining minimum wage compensation

Minnesota restaurant owners want nothing more than to create quality jobs and grow their operations, while serving their customers well. These are extraordinarily difficult times and it appears it will be years before restaurant traffic returns to previous highs. Restaurant owners need the flexibility to work with their employees to create productive work environments. Going forward, as the minimum wage increases, restaurant operators seek the reasonable provision to continue paying servers what they presently make, while ensuring that they make the minimum wage at all times.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota


Senator Kelash Visits Peer to Peer Mixer

Posted in Restaurant Issues by hospitalityminnesota on July 5, 2010
Sen Kelash and Eric Sandrock

Sen. Ken Kelash and Eric Sandrock, American Burger Bar, Visit on Issues

We wanted to recognize and thank Senator Ken Kelash, DFL-Minneapolis, for stopping by our Minnesota Restaurant Association Peer to Peer mixer at Woolley’s Restaurant in Bloomington. The event was an informal gathering of area restaurant operators, and Senator Kelash took the opportunity to visit with members of the industry.

Several restaurant operators shared with the Senator the challenges they continue to face in this economy and their hopes for more positive signs in the future.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

Minneapolis City Council Deals with Fire Inspection Issues

Posted in City Council, Restaurant Issues, Uncategorized by hospitalityminnesota on May 24, 2010

I just returned from a meeting at Minneapolis City Hall in which the city’s Fire Department was grilled about inspection procedures and in which a new system sharing the inspection duty with the Department of Regulatory Services is the recommended model. I was at the hearing because about six months ago, the City of Minneapolis Fire Department instituted a new hood cleaning permit fee. The fee, a minimum of $130 each time a hood is cleaned, is charged to the hood cleaning company, which then passes along the fee to the restaurant operator.

The issue, as raised by the Fire Department, is that some of the cleaning companies aren’t doing an adequate job. The inspection fee was established to require the cleaning companies to take digital pictures of each cleaning job and provide those in order for the permit to be validated. We understand the issue. Our problem is that restaurants are now facing a minimum $130 cleaning permit fee in Minneapolis each time they have a hood cleaned. This amounts to a disincentive to hood cleaning.

Our approach would suggest a different strategy – have the fire department conduct periodic inspections of work done by the cleaning companies (they license them and know who they are, after all). Eliminate the $130 per cleaning fee and instead, charge a penalty of the cleaning company if the work completed is inadequate.

We have been working behind the scenes with various Minneapolis City Council members to try and achieve these changes, or at least, gain a reconsideration of the current ordinance. But in the midst of this effort, Heidi’s Restaurant in Minneapolis went up in flames due to what is reported as a hood fire, and in another tragic incident, members of a family were killed when the apartment in which they were staying went up in flames, also destroying a bar below. These two incidents have cast huge attention on the work of the Fire Department and getting changes to our hood cleaning permit fees, which are a projected $200,000 or more revenue generator for the department, is proving difficult.

Nonetheless, we continue to work the system. It appears there will be a more comprehensive review of the city’s fire codes in 2011. That might provide an opportunity for change. But we can’t wait that long. The hood cleaning permit fee is slated for review after one year of implementation, and we’ll be on hand seeking to eliminate (or at a minimum reduce) the fees.

We express our appreciation with the Minneapolis Area Chamber of Commerce for working with us on this important issue. If you have a relationship with any Minneapolis council members, now is the time to talk to them about this onerous fee and its impact on your business.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

Can Hospitality Escape this Session Without a Tax Increase?

Posted in Elections, General Advocacy, Restaurant Issues, State Laws, Uncategorized by hospitalityminnesota on May 14, 2010

Given the tremendous budget pressure the legislature has faced throughout the session, now amplified by the unallotment ruling of the Supreme Court, to escape this legislative session without a tax increase would be a major industry accomplishment. With just days to go and a major gap before them, several legislative leaders brought forward the idea of a liquor tax.

Our folks on the inside suggest that this is not likely to happen this year for a couple of reasons. First because Governor Pawlenty has been resolute in his opposition to tax increases. Second, because we believe DFL leadership has liquor in its sights for the coming legislative session next year, when the state faces again a huge budget shortfall and a new governor sits at the State house.

So, though it’s still too early to bring out the cheering squad, we are cautiously optimistic that we escape this session without any statewide lodging, liquor, food or beverage taxes. If we do avoid a tax consider that a tremendous victory for our industry.

What about the impact of this session regarding other areas of operation? Thus far, we’ve managed to fend off virtually all harmful legislation, and to modify those we haven’t defeated, such as ignition interlocks. We’ll be sure to provide an industry wrap up outlining the impacts of the session overall.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

Legislative Fly-in to DC Yields Great Results

Posted in Lodging Issues, Restaurant Issues by hospitalityminnesota on April 18, 2010

The Minnesota delegation just returned from Washington, DC where we had great success in meeting with our Congressman and Senators. We had a chance to visit personally with both Senators, as well as meeting with four of our eight Congressman. We met with leading aides for the remainder of the representatives.

Key issues we discussed included food safety (H.R. 2749 and S. 510); Restaurant Depreciation (H.R. 4306); Business Meal Deductiion (H.R. 3333 and S. 2905); Interchange Fees (H.R. 2382, H.R. 2695 and S. 1212) and Paid Sick Leave.

The general consensus among the delegation was that Paid Sick Leave will not move this year. Democrats and Republicans alike are loathe to consider any legislation that might have a negative impact on jobs, and mandating paid sick leave is recognized as one issue that would likely result in job loss. Several key speakers also suggested that the “Card Check” legislation, otherwise known as Employee Free Choice Act, will not see movement in the near future. But they cautioned that the industry needs to remain vigilant.

Food safety will likely be taken up by the Senate in the next few weeks and can have a major impact on our industry. The National Restaurant Association is deeply engaged in the discussion and we support efforts to improve the safety of products that are purchased by restaurants.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

Minnesota Legislature Pace Slows

Posted in Elections, General Advocacy, Health Care Reform, Lodging Issues, Resort Issues, Restaurant Issues, State Laws by hospitalityminnesota on April 14, 2010

The Minnesota legislature is in a bit of a holding pattern right now. Here’s the situation. State legislators facing a $900 Million budget shortfall have made cuts to achieve about 1/3 of the necessary savings. They are holding off on further action awaiting word on the impact locally of the federal health care insurance reform bill. The state is anticipated to receive some additional dollars as a result of changes in that legislation, but it’s unclear the full amount.

In addition, the party conventions are slated to take place in just a few weeks. Because so many current legislators in leadership are running for Governor, they are reluctant to take controversial stands on issues such as budget cuts prior to the nominating conventions. Much of the remainder of the session will depend on the outcome of the nominating process. We’ll be on top of it and keep you posted.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

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Health Care Reform Isn’t Over Yet

Posted in Health Care Reform, Lodging Issues, Resort Issues, Restaurant Issues, Tourism Issues by hospitalityminnesota on March 24, 2010

While you might have thought the health care debate was over, it isn’t yet. Many potential steps remain before the final shape of this legislation is determined and its changes take effect. Today, the President signed the Senate-passed (and now House-passed) health bill into law. We now turn our full attention back to the Senate where Senators will begin tangling over the “fixer” or “reconciliation” bill (also passed by the House Sunday evening).

There are many concerns we have for the reconciliation bill, but below are some of the more troubling provisions for employers:

1. Employer mandate: The penalty for the “free rider” increases from $750 per employee to $2000 per employee if you don’t offer insurance for more than 50 employees. If you do offer insurance, but the employee share of premiums is “unaffordable” (greater than 9.5% of income), and that employee goes into the exchange and receives a tax credit, your fine is $3000 per employee!!

2. For the first time, it uses part-time employees when calculating how many full time employees for that determination of “over 50 employees”. The senate bill was silent on part-time workers.

3. A new 3.8% “Medicare” tax on non-wage income would be placed on high earners, income from interest, dividends, capital gains, and some profits from investments in partnerships and S-corporations. The revenues from the tax on unearned income would be credited to the Supplemental Medical Insurance trust fund. If the unearned income tax-and other proposed tax hikes on high-income individuals included in the President’s FY 2011 budget-become law, a high-income taxpayer could have an effective tax rate on capital gains and qualified dividends of 23.8 percent. Significantly, however, the effective tax rate on nonqualified dividends would be 43.4 percent.

4. The Cadillac tax on “high value” health plans is delayed from 2013 to 2018 – but it will now be only indexed to CPI inflation (Senate bill was CPI+1%). Since medical inflation is so much higher than CPI, this will, without a doubt, become the next Alternative Minimum Tax (AMT) and catch more and more plans every year.

5.  While stating they have removed the “Cornhusker Kickback,” the reconciliation bill also leaves in place special deals for Louisiana, Connecticut, the frontier states, and others, while adding in new special deals for states like Tennessee.

If the Senate makes any changes at all to the reconciliation package, it will have to go back to the House for yet another vote before going to the President for his signature.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

Hospitality and Tourism Day at the Capitol a Huge Success

We’ll start with the numbers: We had more than 215 restaurant, lodging, resort and campground operators at the Minnesota capitol yesterday as we lobbied on behalf of one of our state’s major industries. John Edman, Director of Explore Minnesota Tourism, reminded us in his remarks that the leisure and hospitality industry generates 16% of the state’s sales tax revenue, and is responsible for 10% of the state’s jobs.

Our industry advocates heard about a number of key issues in a morning briefing session. In addition to updates from our Lobbyists Tony Kwilas and Bob Vanasek and myself, we heard from Joan Archer, Executive Director of the Minnesota Beverage Association, about efforts to build a coalition highlighting the positive things our industry is doing in the area of obesity and fighting back anticipated sweetened beverage taxes. Other key issues we discussed included the Post Labor Day School Start, mandatory breaks and sick time, a multi-purpose stadium for the Minnesota Vikings and other events, ignition interlocks and vacation home rentals.

After tremendous visits on the hill, we wrapped up with a new legislative reception at the Kelly Inn featuring some 20 convention and visitor bureaus who did a beautiful job showcasing their communities and highlighting the importance of hospitality and tourism in communities across the state. Some 40-50 legislators attended the reception even in the midst of late-night committee meetings and a chaotic night before the final committee deadline.

I want to use this opportunity to thank the Hospitality Minnesota team for their tremendous efforts in creating a great event, and the Minnesota Association of Convention and Visitors Bureaus for being tremendous partners.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

Industry Scores Major Victories; Labor Day and Adult Entertainment

Over the past two days, the hospitality industry scored two major victories at the legislature. The first was defeat of a government operations bill that stepped deeply into the business practices of our industry. Wednesday morning, we defeated H.F. 3287 in the House State and Local Government Operations Reform, Technology and Elections Committee that would prevent state workers from booking rooms or meetings in Minnesota hotels that offer pay-per-view adult movies that link sex with violence. I was the sole testifier against the bill authored by Rep. Haws (DFL-St. Cloud), which has a companion Senate bill, SF 2861, authored by Sen. Taryl Clark (DFL-St. Cloud).

In my testimony, I chastised the advocacy community for turning immediately to legislation to solve this problem. I offered to sit with the advocates (groups seeking to combat sexual violence) to have a discussion about the issue and allow industry to gain a better understanding. I further suggested that the vast majority of this material is not viewed in hotel rooms, but rather on the Internet. We will continue to monitor this issue, but certainly believe this legislation simply went way to far in dictating business practices for our industry.

In the second victory, a house Education Committee stripped a Post Labor Day school start repealer from a Committee Bill by a vote of 11-9. This narrow victory in an Education Committee is a significant victory for the industry. While Labor Day school start opponents will likely try and amend bills on the floor of the House or  Senate to continue a repeal effort, we stand in a strong position given that the committee has spoken. In part, committee members suggested that we ought to give the 25 districts in the Southwest corner of the state time to work their experiment before we make other changes in the Labor Day statute. In particular, we thank Rep. John Ward (DFL-Brainerd) for his work on the Labor Day issue.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota

Ignition Interlock Bill Hearing Today

Posted in General Advocacy, Restaurant Issues, State Laws by hospitalityminnesota on February 25, 2010

Today, if you are a first-time offender for driving under the influence, you face a three-month license revocation. Governor Pawlenty has proposed legislation that would extend that revocation to six months, but allow one to drive if they install what is known as an ignition interlock (blow and go) device. The bill gets its first hearing today in the Senate Transportation Committee. The bill is S.F. 2741 and can be found here. The companion House file is H.F. 3106.

This is a very difficult issue for us. We do not condone drinking and driving. We absolutely believe repeat offenders and those with high blood alcohol level content should be subject to this provision. Our concern is in regard to that person who happens to have a couple of beers and tests at .085, gets picked up on a first-time offense, and must install one of these devices to avoid license revocation. These devices require a monthly monitoring fee of approximately $100 and may require an installation and removal fee as well.

Knowing that this fate that might await you, we are concerned that individuals simply will not drink when they are out, or will have one or two fewer drinks to ensure that they don’t get dinged.  This could have a substantial impact economically on an industry that’s already been hammered with declining sales, the smoking ban, a recent minimum wage increase with no acknowledgment for tipped employees and increased fees and regulations.

We would strongly support the ignition interlock piece for repeat offenders, or even for first-time offenders at .15. For more information on this issue, see The bill likely will visit several committees and we’ll keep you posted as it progresses.

David Siegel, CAE, IOM
Minnesota Restaurant, Lodging and Resort & Campground Associations and Hospitality Minnesota