House supplemental budget bill would create statewide ‘tip credit’ in Minnesota

Photo by Taylor Davidson on Unsplash
Minnesota is one of just seven states that doesn’t allow employers of tipped workers to count tips when calculating when minimum wage requirements are met.

A pending supplemental budget bill that is nearing a negotiated agreement between the House and Senate contains an issue that hasn’t gotten a lot of attention at the statehouse — but has generated plenty of controversy in Minneapolis and St. Paul.

The conference committee is close to a deal on reconciling omnibus bills — House File 4099 and Senate File 3656 — with dozens and dozens of spending and other issues embedded within them. One of the provisions creates what is termed a two-tiered wage system for the state’s minimum wage law. Activists in Minneapolis last summer and St. Paul this summer know it by other terms: the tip credit or tip penalty.

Minnesota is one of just seven states that doesn’t allow employers of tipped workers to count tips when calculating when minimum wage requirements are met. Minneapolis’ local minimum wage ordinance makes no distinction between tipped and un-tipped workers.

And while St. Paul is still considering details surrounding a local minimum wage, St. Paul Mayor Melvin Carter has come out against a tip credit.

But should the minimum wage provision end up in whatever supplemental spending bill reaches Gov. Mark Dayton, and should he end up signing it, the issue would be mostly moot at the local level.

Debate in the Twin Cities

The idea of a two-tiered minimum wage was controversial in Minneapolis and continues to be in St. Paul. Many tipped workers and restaurant owners pushed for the credit, arguing that tipped workers tend to make more than other restaurant workers and that restaurants would be financially stressed if they had to pay servers and bartenders even more than they already make with tips.

Opponents of the tip credit maintain that restaurant workers in states with what they call “One Fair Wage” are treated more fairly. And they cite incidences of wage theft where restaurant owners do not make up the difference between the lower minimum wage that tipped workers start at and the higher wages they must reach with their tips.

In testimony before a House committee last month, Minnesota AFL-CIO President Bill McCarthy said that the tip differential was removed by the Legislature in 1984. But it has become a regular part of the discussion on minimum wage.

“Here we are again,” McCarthy said.

“This is not an industry in crisis,” Wade Luneberg, secretary-treasurer of the UNITE-HERE union told the same committee. “The industry wants this exception because they want it.” But Luneberg said tips are a contract between the server and the customer, not the owner of the restaurant.

Opponents of a tip credit also raised concerns that making servers dependent on tips contributes to harassment of servers who are overwhelmingly female. Opposition to a tip credit became something of a litmus test for Minneapolis council members and mayoral candidates during the 2017 election. Similar pressures from activists led by $15 Now are being brought on the St. Paul Council.

And worker advocates in other states have been campaigning to have two-tiered wage systems eliminated in favor of a system without tip credits. A national organization — the Restaurant Opportunities Center — has made one fair wage a centerpiece of its work.

Tip credit boards the omnibus

Rep. Pat Garofalo — along with Rep. Joe McDonald, R-Delano — was the author of a separate House bill (HF 4061) this session to introduce a two-tiered minimum age in Minnesota. That bill received a hearing only in the House. After hearing testimony from restaurant owners and some servers in favor and from labor advocates who opposed, the bill was set aside for possible inclusion in a future omnibus bill. It has now been included in the supplmental budget omnibus bill, and Garofalo is a member of the conference committee.

Garofalo, R-Farmington, said he heard testimony from restaurant workers who fear wage loses and job losses due to the economic pressures put on restaurant owners who have to increase pay for all workers, including those already making well above the minimum wage. He said it could lead to restaurants shifting away from table service toward counter service or other formats that require fewer servers.

State Rep. Pat Garofalo
MinnPost photo by Peter Callaghan
State Rep. Pat Garofalo

“Switching from table service to counter service means lower costs for the business but it means fewer high-wage, tipped employees,” he said. “That’s why some of these tipped employees are so aggressively advocating for it.”

Under the provisions in the current bill, a tipped worker would make at least $12 an hour for smaller businesses and $14 an hour for larger businesses. But an employer could count that worker’s tips to cover the difference between the state’s regular minimum wage rate and those higher levels. Only workers who make at least $30 a month in tips would be covered by these rules.

While it is likely that the minimum-wage changes will clear the House and Senate, at least the first time around, Dayton’s acceptance is less assured. His Department of Labor and Industry  commissioner, Ken Peterson, opposed the House bill in committee. Dayton could, however, end up having to decide whether blocking the change is worth vetoing the entire supplemental budget measure. UPDATE: Dayton Friday afternoon included the provision on a list of 117 items he doesn’t like in GOP omnibus bills, listing it among language “that needs to come out.

“I’m pretty confident this is going to be signed into law,” Garafolo said.

Should Dayton end up vetoing the supplemental budget bill, Garofalo said he thinks it will be due to some other provisions inside, not the two-tiered wage issue.

Earlier this week, a delegation of members of a pro-tip credit group — Restaurant Workers of America — met with a senior Dayton staffer to make the case for the McDonald-Garafolo language, said RWA national president Jennifer Schellenberg, a Minneapolis bartender.

Comments (27)

  1. Submitted by RB Holbrook on 05/18/2018 - 10:39 am.

    Three Questions

    Was the constitutional requirement that bills embrace only one subject repealed?

    If not, what does a change to the state’s minimum wage law have to do with the state’s budget?

    At the end of the day, isn’t this really just about sticking it to the liberals?

    • Submitted by Ken Bearman on 05/18/2018 - 11:10 am.

      Your questions

      1. No. As you know, there’ve been no constitutional amendments passed in the past few years.

      2. Nothing. It’s the usual sloth move by the legislative majorities that can’t budget their time effectively to pass bills. (Did I just diss sloths?)

      3. No. Listen to the servers themselves. And local, independent restaurant owners support their servers and vice versa on tip credit.

      • Submitted by Frank Phelan on 05/18/2018 - 11:27 am.

        There are Plenty of Servers

        Who oppose the tip penalty.

      • Submitted by Mark Snyder on 05/18/2018 - 11:36 am.

        3. Disagree

        When Minneapolis was considering the $15/hr minimum, there were many, many examples of servers telling their stories why there should be no tip penalty. The servers who were asking for one were largely sharing the stories their bosses were using to scare them with.

        • Submitted by Ken Bearman on 05/18/2018 - 12:50 pm.

          Tip credit

          I can’t tell if Messrs. Snyder and Phelan agree or disagree with my response #3. I’m with the many, many servers who support including a tip credit so they don’t lose income. That should be the same as opposing a tip penalty, right?

          • Submitted by Pat Terry on 05/18/2018 - 01:38 pm.

            They disagree

            Because your point is completely invalid. The tip credit only hurts servers, who are only responding to pressure from their employers.

            This is just sticking it to the liberals. And more precisely, sticking it to the servers.

            • Submitted by Ken Bearman on 05/18/2018 - 02:14 pm.

              Give them credit!

              So you guys believe — with what evidence? — that all those servers are either mindless or terrified drones?

              That’s not what I was reading and hearing from a lot of them during the Minneapolis tip credit debate. Give servers credit (no pun intended) for knowing what’s good for their own paychecks.

      • Submitted by RB Holbrook on 05/18/2018 - 12:30 pm.

        My Questions

        1. Yes, it was a purely rhetorical question.

        2. It’s also a way to get it past a Governor who wold otherwise veto it. The courts have enabled this dodge by reciting the requirement, and then saying that it isn’t violated.

        3. In an era when big city liberals are moving to increase the minimum wage, I have to question the purity of the motive here. I’ve known a lot of servers. I know more about people who are bad tippers, who proclaim that stiffing the server is a “matter of principle,” or the customers who leave Bible tracts in lieu of cash (ever hear about the fake $10 bill that is really a call to Jesus?) than I ever would have thought plausible. Tip credits don’t strike them as such a hot idea.

  2. Submitted by Frank Phelan on 05/18/2018 - 12:27 pm.

    Who Is Pulling the Strings?

    Rep. Garofalo is closely associated with the billionaire and corporate funded ALEC, so we know who butters his bread.

    The Restaurant Workers of America? Cute how they make it sound like a union; it’s not. I looked at their web site, which said nothing about where they get their funding.

    I put more weight in the opinion of UNITE/HERE, a real union of hospitality professionals. They are funded by members’ dues. The leaders are democratically elected by the members, and there are no restaurant owners on the board.

  3. Submitted by Ken Bearman on 05/18/2018 - 04:16 pm.

    Omnibus bill

    Whatever anybody thinks about tip credit, the omnibus bill will be unconstitutional for violating the single-subject requirement.

    One of these decades, after one of those bills becomes law, somebody will sue successflly and get it thrown out. It can’t happen too soon.

    • Submitted by RB Holbrook on 05/21/2018 - 09:27 am.

      Good Luck With That

      The Court of Appeals ruled on this issue last year, and the MN Supreme Court affirmed the ruling without an opinion. Here is part of what they said:

      The Single Subject Clause provides that “[n]o law shall embrace more than one subject.” Minnesota applies the germaneness test to determine whether a law violates the Clause, broadly construing the term “subject.”
      . . .

      With the exception of some successful challenges to legislation in the late 1800s and early 1900s, our supreme court generally has rejected single-subject challenges. Starting . . . in 1986, however, members of the court in concurring opinions have expressed their growing frustration with the legislature’s conduct in grouping tangentially related subjects in large bills. Notwithstanding these warnings by individual members of the court, however, the court’s majority decisions continued to reject challenges under the Single Subject Clause. Otto v. Wright County, 899 N.W.2d 186, 194 (Minn. App. 2017) (citations omitted)

      The courts will uphold a law if the subjects of the bill are connected by a single thread, and it is enough that that thread be a “mere filament.” Id.

      Interestingly, Rep. Garofalo is a co-sponsor of H.F. 4501, a bill introduced las week that would propose a constitutional amendment strengthening the single-subject requirement. I doubt that the bill has a snowball’s chance of passing this session, but it’s a good first step.

  4. Submitted by Jeremiah Dittmann on 05/19/2018 - 08:35 am.

    In support of a tip credit

    Without a tip credit, servers will lose jobs and restaurants will close. Some existing restaurants will move towards a counter service model which requires a smaller service staff to operate. As a server, greedily I should support a $15 minimum wage, but I know there will be fewer jobs to go around which is why I will always support a tip credit.

    • Submitted by Paul Udstrand on 05/20/2018 - 08:54 am.

      Couple things Jeremiah

      First, we don’t have a State-wide $15 minimum wage (yet) so this bill really just targets MPLS. Second, restaurant owners always make the financial hardship claim but it’s a facile claim because they pretend they can’t do ANYTHING but stand by a lose money while they pay higher wages. It’s important to remember that living wages don’t reduce revenue, they simply raise one of the expenses or costs of doing business. Part of owning a business is having to cope with expenses, and expenses don’t remain stable. Owners can cope with this, they just don’t want to. Lay-off threats and warnings are a standard feature of any attempt to control wages. The problem is that restaurants that reduce staff, reduce the quality of service, and poor service is the number one killer of restaurants. Patrons don’t tolerate poor service, no matter who you blame.

      Finally, we have experience now with this and we know that living wages don’t appear to kill jobs. At first the were mixed. Seattle for instance implemented $15 minimum with tip credits, and despite the tip there were early industry claims that the higher MW’s STILL killed jobs. However specific and more detailed subsequent studies that looked specifically at the food industry showed that no jobs were lost.

      http://irle.berkeley.edu/seattles-minimum-wage-experience-2015-16/

      I think one of the reasons we ended up without tip credits in the first place is that the business community, perhaps as a reflection of it’s Republican affiliation, choose to fight take no prisoner all or nothing battles rather than negotiate from the start. The problem with all or nothing battles is you end up with all or nothing when you lose. So they lost the battle to block $15 with or without the tip credit, and now they’re on the verge of losing the tip credit fight because they’re trying to implement it after the fact. They’re losing because Republicans can’t get anything done, and this trip credit bill appears to headed for a veto.

      • Submitted by Tim Smith on 05/21/2018 - 09:08 am.

        so where

        does the money come from? Wages are a high % of the cost of doing business. If wages are mandated to go up, where does the difference get made up? closings, higher menu prices, smaller portions, cheaper ingredients, more automation(seeing that a lot lately). The middle class pays the price that’s how.

        No owner pretends anything, if you have been there you know the realties of operating a business.

        Berkely study is not considered as accurate as U of Washington.

        https://www.forbes.com/sites/timworstall/2017/06/26/as-ive-been-saying-seattles-move-to-15-minimum-wage-kills-jobs-lowers-low-incomes/#42214d224cdb

        http://www.forbes.com/sites/timworstall/2017/06/27/these-people-are-shameless-seattles-15-minimum-wage-is-worse-than-you-thought/#12fe921b31ba

        • Submitted by RB Holbrook on 05/21/2018 - 09:30 am.

          Higher Menu Prices!?

          Restaurant diners know, or should know, that the gratuity is part of the cost of the menu item. It should be figured in when deciding the dining out budget.

          For most of us, the price of a meal will not increase appreciably.

        • Submitted by Frank Phelan on 05/21/2018 - 09:52 am.

          Silverback

          Maybe I’m showing my age here, but I recall when MN ditched the tip penalty. The restaurateurs howled in protest, “The will fall! The sky will fall!” MN DOLI did a study, and found that eliminating the tip penalty would indeed raise prices. By seven cents per meal. Of course with inflation, that’s probably more like a whole quarter now. I don’t listen to boys who keep crying wolf.

          So let’s reverse the process. If we keep the minimum wage where it is, and go back to the tip penalty, does anyone think prices would drop?

        • Submitted by Paul Udstrand on 05/21/2018 - 09:59 am.

          Any business person who has to ask…

          I’m sorry but it’s always funny when business people or people representing business ask where the money comes from, it’s quite difficult to take this question seriously, … it’s called an “economy”. Economies are not closed systems, nor is revenue some mysterious phenomena. All businesses get their revenue from their customers, and customers get their money primarily from wages and salary’s, again, it’s called an “economy”.

          Even if revenue remains flat all business have to cover their expenses, and wages are one of those expenses. If you can’t pay your expenses you don’t have a viable business model. These are elementary principles of business.

          The question you’re REALLY asking is how can owners pay more in wages without making less themselves? Well, that’s the owners problem, that’s business. There is no law of the universe or economics that guarantees wealth for business owners. The assumption behind your question is that owners are ENTITLED to make whatever they make, but workers must make due with whatever owners want to pay them. The problem with that mentality is that living in a community costs whatever it costs and if employers don’t pay living wages, and if taxpayers don’t make up the difference, working people end up living in poverty.

          What we see here time and time again is that owners tell us about their thin margins but no one (specially business reporters) ever asks what those margins really are… owners never tell us what they actually make. Owners and their allies are simply fighting for the principle that no owner should make less so that employees can make more. Workers wages are a “problem” but owners wealth isn’t even a legitimate question.

          • Submitted by Tim Smith on 05/21/2018 - 11:00 am.

            no way?

            the point is….if revenue is x, costs are x and now go to x+ you have less of a gap for other things, how do you make that up? being an owner doesnt make you rich either. business, or your “economy” is never set in stone.

            • Submitted by Frank Phelan on 05/21/2018 - 12:38 pm.

              Savvy Businesses

              If those business owners are so savvy, how come they don’t know how much to pay their employees? Why do they let customers decide how much their employees’ work is worth?

              • Submitted by Tim Smith on 05/21/2018 - 03:21 pm.

                because

                they get better service.

                • Submitted by Frank Phelan on 05/22/2018 - 09:44 am.

                  Hmm

                  So the employers are unable to determine if wait staff are giving good service? Must be the case, if they rely on customers to do that. How does the owner determine if the cooks are giving good service? And what is their incentive to perform well, if they are not tipped? Accountants, grocery store clerks, and furnace installers do not receive tips. They must not have any incentive to give good service.

                  If someone is unable to determine an employee’s wage, or how they are performing, it might be time for a new occupation.

            • Submitted by Paul Udstrand on 05/21/2018 - 02:28 pm.

              Too many X’s

              Tim, you’re algebra is little funky, if expenses are the same as revenue you have no profit. You’re assuming that business models are closed systems with revenue and expenses that don’t fluctuate and profit margins that can’t absorb fluctuations. That’s simply not how business works, or at least it’s not how successful business works. Yes, profit margins fluctuate, every business owner has to figure out how to cope that fact. There’s no law or generally accepted principle of economics that says legislators should pass laws prohibiting anything that narrows profits margins.

              It’s always a little weird when libertarians argue that taxpayers should protect business owners from their own expenses somehow.

              Yes, Republicans and neoliberals have suppressing wages for decades, but that’s not sustainable. You smashed the labor unions, but we still live in a democracy where workers can vote.

              • Submitted by Tim Smith on 05/21/2018 - 03:20 pm.

                just maybe

                you should listen to people who know first hand though. Not an imaginary world view. I support a businesses right to choose.

                • Submitted by Matt Haas on 05/22/2018 - 09:18 am.

                  They can choose to adapt, and continue making money, or they can close up shop and not. Others will happily take their opportunity, such is the supposed nature of capitalism.

                • Submitted by Paul Udstrand on 05/23/2018 - 08:59 am.

                  Imaginations…

                  I’m not sure the people who understand where money comes from are the ones living with an imaginary world view.

  5. Submitted by Paul Udstrand on 05/19/2018 - 11:22 am.

    Here’s the problem with tip credits…

    Well, one of the bigger problem with tip credits- it’s called wage theft and it a widespread crime in the food industry. The problem with tip credits is that in order to enforce them, the tips have to be pooled and deposited with the owner or manager, who then counts them up and distributes them among the staff. You have to do this way, it’s the only way a manager can figure out how much to adjust the wage according to tip collection. The problem with THAT is the employees have no access to the employers books, they have no way to audit their wages adjustments. Tip credit laws never include any mechanism to audit the wage adjustment process. It’s not uncommon for employers to just pocket tips, inflate the tip numbers, and pay lower wages accordingly. It’s one of many kinds of wages thefts that crop up in the US.

    You see this all the time in connection with industry complaints about minimum wages… owners always bemoan the costs but they never open their books so we can see what their revenues are, they say they’re margins are “thin”, but they never show us their margins. We can’t see their books so we have to take their word for it.

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