Cruelest Cut

Minimum wage hike will actually cut pay for Minnesota waitstaff

If the U.S. Senate tomorrow approves a controversial measure that would both increase the minimum wage and lower estate taxes for the very wealthy, servers in Minnesota restaurants can kiss goodbye some $4 an hour in wages. The bill, which would increase the federal minimum wage--that is, the least a state can mandate--from $5.15 an hour to $7.25 over three years. But wages for some 1 million tipped employees in seven states would actually fall. In Minnesota, waitstaff, cab drivers, and other workers who earn at least $30 a month in tips will see their wages fall from the state's current minimum--$6.15 for most workers--to $2.13.

Here's a more detailed explanation from the Economic Policy Institute, which yesterday issued a memo on the provision:

In most cases, the tipped employees would be subject to the federal minimum wage law, which allows employers to pay as little as $2.13 an hour and to rely on customers' tips to make up the rest of the $5.15 minimum wage. This is known as a "tip credit." Thus, in Washington, tipped employees would see their minimum wage cut from its current $7.63 an hour (plus tips) to $5.15 an hour (including tips). Employers would see their minimum wage obligation to tipped employees fall by $5.50 an hour--from $7.63 an hour to $2.13 an hour (assuming $3.02 in customer tips). For example, an employee who is currently paid the state minimum wage of $7.63 an hour and receives $3.02 in tips earns a total of $10.65 per hour. Under the House-passed bill, the employer would be permitted to pay only $2.13 an hour and count the customers' tips to make up the rest of the $5.15 federal minimum wage. The employee would lose $5.50 per hour in pay.

Last week this paper carried a story on the practice of tipping, or, more precisely, the impact of not tipping. Tax law now stipulates that the tabs of diners waited on by a particular server be tallied and the server taxed on presumed income of up to 18 percent of the total. Dara Moskowitz wrote about this to demonstrate that not tipping, or even under-tipping the once-standard 15 percent, can actually cost a server money. Really, read it and pat yourself on the back if you're a habitual 20 percent tipper.

Of course, if congressional Republicans succeed, there will be at least a few more people out there who can afford to tip lavishly: The estate tax portion of the bill would hand $1.4 million apiece to some 8,600 heirs, according to the Center on Budget and Policy Priorities.