Monthly Archives: April 2014

Tipped Minimum Wage Increase Likely?

A recent debate over federal minimum wage requirements began in November 2013 with the introduction of a bill by Senator Tom Harkin, a Democrat from Iowa. Originally titled the Fair Minimum Wage Act, it was reintroduced on April 8th as the Minimum Wage Fairness Act. Aside from making several changes to existing federal law when it comes to worker pay, the most visible prong of which has been an increase of the federal minimum wage from $7.25 to $10.10 for workers covered by the Fair Labor Standards Act, the proposed bill would also phase in increases to the minimum hourly wage for the nation’s estimated 3.3 million tipped workers to about $7.07 over the course of 6 years from the current federal minimum of $2.13, then indexing it to inflation and finally pegging it to 70% of the non-tipped minimum wage.

There isn’t much dispute that Senator Harkin’s proposed legislation is well-intended, though economists are divided when it comes to the anticipated effects that such a law would have on low-wage workers and the economy as a whole. But whether and to the extent the nation’s waiters, bartenders, and casino dealers are in the same proverbial boat as their non-tipped “low-wage” co-workers is another matter entirely.

Some of the biggest supporters of the bill such as Restaurant Opportunities Centers United argue that the increases will lift low-wage workers out of poverty, particularly women with children, and reduce the reliance by those workers on food stamps, thus effectively reducing taxpayer burdens for welfare programs. In contrast, the restaurant industry has pointed out that the mean hourly wage of tipped workers, including tips, currently stands at $10.10 (according to the Bureau of Labor Statistics) almost $3.00 above the existing minimum wage and equal to the minimum wage proposed by the bill. Restaurant operators therefore argue that this issue is much ado about nothing and a solution in search of a problem.

Further, industry organizations like the National Restaurant Association point out the obvious strain these kinds of increases can have on employers, particularly small businesses which employ the bulk of minimum wage workers, when restaurants already operate on incredibly slim margins of about 3-5%. The result, they argue, would be a reduction in workers’ hours, slow hiring, increased prices for consumers, and the limitation of business expansion. In an uncertain political and economic climate already unsteadied by implementation of the 2010 Affordable Care Act, restaurant employers are understandably alarmed by the potential further erosion of their bottom line.

What’s next? Currently the proposed bill remains under review in the Senate, but odds are low it will pass. Local lawmakers, however, have been addressing the issue within their own states, with more than half of states having minimum wages above the federal minimum or which will take effect soon, and according to the New York Times twenty-four states have already set minimum wage for tipped workers above the federal minimum of $2.13. Seven more states require employers pay tipped workers the same minimum wage as their non-tipped counterparts. Pennsylvania is one of the states which currently pegs minimum wage to the federal minimum for non-tipped workers and to $2.83 for tipped workers. Recently, two Democratic state senators from Southeastern Pennsylvania (Daylin Leach, D-Montgomery, and Mike Stack, D-Philadelphia) introduced a bill which would raise minimum wage for all workers in Pennsylvania to $12 per hour. However, none of the four Democrats in the primary race for Pennsylvania governor have expressed support for a hike quite so high. State treasurer Rob McCord, U.S. Rep. Allyson Y. Schwartz, and York County businessman Tom Wolf all support the wages proposed by the federal bill, with tipped minimum wage pegged to 70% of non-tipped wages, while only environmental protection secretary Katie McGinty has cited support for paying tipped and non-tipped workers the same minimum wage, though set to what amount has been unclear. Governor Tom Corbett has already signaled he does not support a minimum wage hike, making passage of any legislation during his term or any reelection term highly unlikely.

Meanwhile, a recent survey by the Lincoln Institute Spring 2014 Keystone Business Climate Survey of 378 Pennsylvania business leaders found while most opposed a minimum wage hike, 63% reported that the minimum wage in Pennsylvania has no impact on their businesses, “largely because their employees already earn above that standard.” In other words, many Pennsylvania businesses are already voluntarily paying more than the minimum wage, which raises doubts about both the purported beneficial impact for employees of an increased minimum wage and the necessity of mandating it at all.

While the federal and state climate regarding minimum wages remains uncertain, there is significant and vocal support from both sides of the issue, which from a strictly commonsense standpoint makes passage of any hikes in opposition to the status quo seem somewhat less likely. Nevertheless, it’s an issue we are watching closely for potential effects on our clients’ interests, particularly this year during the Pennsylvania governor’s race and federal election cycle.

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