Workers Who Earn Tips Could Lose Thousands of Dollars Each Year in Republican Bill

by Mike Hall, Aug 1, 2006

It’s bad enough that House Republicans used a cynical legislative move to defuse the minimum wage issue—a hot potato for them in upcoming elections—by coupling a raise in the federal minimum wage with a $753 billion estate tax cut for millionaires.

(This week, probably Friday, if enough sensible senators put a stop to the millionaire tax giveaway, Republicans will attempt to twist that into a vote against the minimum wage.)

But digging deeper into the bill shows the legislation is even worse than it first appears. The bill the House passed in the early morning hours July 29 actually will cut the wages of millions of workers who earn tips along with their hourly wages. That pay cut could be as much as $5.50 an hour, the Economic Policy Institute reports.

Here’s how it works. Under current federal law, employers do not have to pay the full minimum wage of $5.15 to workers who earn tips—bartenders, waiters and waitresses, hotel maids, hair dressers, parking attendants and dozens of other categories of tipped workers. Employers can pay tipped workers as little as $2.13 an hour and then claim that tips make up the difference between the $2.13 and $5.15 an hour. That’s called the trip credit.

But current law also says states may overrule the federal tip credit and require employers to pay the minimum wage, either the federal rate or a higher state minimum wage. For example, in Washington state, tipped workers earn the state minimum of $7.63 an hour plus tips. Tipped workers in Alaska, California, Minnesota, Montana, Nevada and Oregon also receive the full minimum wage with their tips.

The Republican estate tax bill takes away the power of the states to require employers to pay tipped workers the full minimum wage plus tips.

Another part of the H.R. 5970 tip credit provision prohibits states from trying to restore parity between tipped and nontipped workers. Under the bill, if states want to require employers to pay more than $2.13 an hour to tipped workers, they would have to allow a tip credit under state law. That means the state would have to freeze the wage requirement that employers have to pay at its current level, so employers don’t have to pay higher cash wages when the minimum wage is increased.

Thus, H.R. 5970 cuts pay for tipped workers and then prohibits states from restoring those pay cuts all the way.

Nathan Newman at TPM Café warns that the tip credit scheme in the bill could have far-reaching consequences:

This would be an unprecedented move by the federal government to preempt state minimum wage laws.  Not only would it hurt tipped workers, it would set a precedent for conservatives to try to preempt all minimum wage rates higher than the federal rate.

EPI’s analysis says in Washington state:

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.

Do the math: For a full-timer worker, that’s an $11,400 a year pay cut!!

This afternoon, on its Virtual Editorial Board blog—where readers can view and comment on drafts of the next day’s editorials—the Seattle Post Intelligencer wrote for Wednesday’s paper:

You have to give the GOP leadership some warped credit for a single piece of legislation that strips money from working people in order to pad prospects for inherited wealth. Even Robin Hood couldn’t have been that crafty.

We only hope the Senate isn’t as eager to rob from those who work for a living.

We’ll find out this week.

Tomorrow at 2 p.m. in Seattle, members of the Washington State Labor Council (WSLC), Rep. Jay Inslee (D-Wash.) and workers who rely on tips to make ends meet will hold a press conference at the Executive Inn near the Space Needle “to call attention to this outrageous and inexcusable attack on working families,” according to David Groves, editor of the WSLC Reports Today.

Visit the WSLC website for more information.

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