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


Dayton Leads the DFL Field, Emmer tops Republicans

Posted in Elections by hospitalityminnesota on June 20, 2010

KSTP released a statewide poll taken last week showing Mark Dayton with a 39 percent to 26 percent lead over  the DFL endorsed candidate, Margaret Anderson Kelliher. DFLer Matt Entenza, who is also running in the primary, has 22 percent support.

Voters were asked that if the primary election were held today, which DFL candidate they would support to face Republican Tom Emmer and the endorsed Independence Party candidate, Tom Horner. The same poll showed Dayton as the only DFL candidate capable of beating Tom Emmer, the Republican candidate. The poll had a 500 sample size and a 4.5 percent margin of error.

I have been saying for more than a month that likely to win the DFL primary. Here are my reasons: First, Dayton knows how to craft a simple and effective message and stay on task. Second, he appeals to the senior voters. This is important because we’ve moved the primary one month earlier to August, and seniors will be among the most likely to vote. Senior also like Dayton for his earlier work on the cost of prescription drugs. Third, he brings tremendous personal resources to the campaign. Money isn’t everything, but it means a great deal in politics these days, and Dayton has the money to get out his message.

Of course, I thought R. T. Rybak would gain the DFL endorsement and Marty Seiffert would win the Republican endorsement, so what do I know?

On the other side of the aisle, it seems almost assured that Rep. Tom Emmer will take the Republican primary. He is a formidable candidate with tremendous passion and a strong vision for change in Minnesota. While Dayton, Kelliher and Entenza have all publicly supported tax increases as a major piece of solving our state’s budget shortfall, Emmer has not. He has talked much more about reforming government and restructuring the delivery of our services.

For political watchers, this is quite a time.

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