From the House: There is no sub-minimum wage and other tip credit myths


We live in a politicized world. When a political issue is discussed – almost any policy – opposing parties often rely on intentionally inciting language to persuade, deter and manipulate voters into seeing their side. There are a number of tactics that are used: false equivalences, straw men, sweeping generalizations, historical inaccuracies, etc. – they are called logical errors. There is another thing that is also used sometimes, and that is outright deception (sometimes referred to as appealing to ignorance, which means that someone is uninformed on a subject and the deceiver acts Consequently).

On the City of Portland’s November ballot, one of five citizens’ initiative questions is titled Question D – Legislation to eliminate underpayment, raise minimum wages and strengthen worker protections. Here’s the thing: there is no minimum wage.

The tipping credit, which would be eliminated if passed, essentially states that tipping employees (i.e. servers and bartenders) can be paid half the hourly minimum wage, as long as they earn the rest of their hourly wages with their tips. If they don’t make up minimum wage with their tips, the employer will pay them for that shift whatever they need to make sure they earn at least the full minimum wage.

To be honest, it’s pretty rare that a waiter doesn’t compensate their hourly rate with tips. Joshua Chaisson, whose column I quoted last week, said he made more than $40 an hour on tips at his “low-cost” Portland restaurant. In 2016, at the 2-hour committee hearing I reported on four weeks ago, servers testified under oath that they regularly made $25 to $35 an hour or more.

Do the math yourself. For tip credit, servers must clear $6.38 per hour in tips. For a four-hour shift, it’s $26. Now ask yourself, when was the last time you left less than $5 for a tip or less than $1 a beer for your bartender? It’s not hard to get $7 an hour in tips – even at the most affordable establishments, waiters can pull that off easily. Maybe they don’t during a snowstorm or when there’s a construction project on the sidewalk ahead or at other rare times, but when that happens the employer then pays them the pay for tips they did not receive.

Why does the under-minimum wage clause exist then? Why is it in the title of question D? Because it’s supposed to piss you off. You’re supposed to get really mad and hypervigilant against the employer. Proponents of this question want to trick you with a fake term and imply that waiters earn less than minimum wage, when hundreds of waiters swore under oath six years ago that they earned more than $25 a year. ‘hour. They don’t want you to know that the owners compensate for tips that weren’t made on the maybe one shift a month when this happens. It is meant to deceive you.

Here’s another common mistake: “Why can’t you get full minimum wage plus tips?” Nothing says you can’t have both. But the numbers don’t work. We found this out in the six months the tip credit was phased out in late 2016 and early 2017. The reason it doesn’t work is that restaurants notoriously have the thinnest profit margins in all industries. Most reports say the margin is 1% to 3%, but some studies say it could be 3% to 6%, which is slim either way.

For almost any business, the top three expenses, in some order, are: payroll, construction costs (rent/mortgage, utilities, heating/air conditioning, etc.), and inventory. When you say “pay servers and bartenders full minimum wage,” you are precisely doubling the payroll cost of those restaurant servers (not to mention the likely slowdown in pay increases for untipped restaurant workers like cooks , That’s not the case today) .

Basically, the employer must compensate for this doubling of the payroll by reducing expenses or increasing revenues. Reducing expenses means either reducing teams/people or reducing other costs such as food quality and inventory. Raising revenue can essentially be done in one way because there is no diversified revenue stream: increasing menu prices. Some may say, “More people will go out to eat, which will increase revenue,” but there is no direct correlation between increased wages and increased customer numbers.

What some restaurants did in 2016, in the face of an estimated 20% increase in their costs due to the change in payroll, was switch to a no-tip model. Essentially, the idea is, “Hey, we’ve increased the menu items by 20%, but you don’t have to tip anymore, so you basically pay the same as before.” It was a disaster. Search it on Google. Google “No-Tip Model Restaurant” and for every positive story, you’ll find three negative ones. Almost all restaurants in non-affluent areas cannot operate a tip-free model.

It’s easy to see why. Customers will only pay a certain amount for menu items. No one wants to pay $30 for a burger and fries. Look at the prices of meat at the grocery store. Look at vegetable prices. Add it together. Now consider the price of labor to cook it. You can see why this adds up so quickly.

Now add to that that the server serving it to you no longer earns $25-35, it earns $12.75 – or $18 if the Portland referendum passes. Now this server, who chose this job based on the tips he can earn in less than a 40-hour workweek, cannot max out his hours; they are simply paid at a flat rate regardless of their level of service.

We’ll cover that part of this complex topic in the final column of this series next week. Reminder: don’t take my word for it; ask your favorite server or bartender. They like the spiked pattern and don’t want it changed.

Cory King is the Executive Director of the Regional Chamber of Bath-Brunswick.


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