We strongly encourage legislators to pass server wage language, which would be similar to the cash tipped employee language signed into law by President Clinton in 1996. Tipped employees would never earn less than the current minimum wage, or any new minimum wage, when you factor in their tips.
Our server wage language would maintain tipped employees at their current rate of pay and recognize the federal language that mandates a fixed tipped employee wage. It also guarantees that no tipped employee will EVER earn less than the minimum wage. If a tipped employee does not earn sufficient tips during the employer’s pay period to equal the difference between their cash wage and the minimum wage, the employer will pay the difference.
Restaurants are facing tough economic times. Energy costs and commodity
prices are up dramatically. These increases not only affect restaurants
but also consumers who are left with less and less disposable income.
Minnesotans are cutting back on their discretionary spending and that
means less dining out.
The new Minnesota minimum wage, which was passed and signed into law in 2005, did not include recognition of a server wage.
Full-service restaurant segment has been an engine of growth for the overall economy, even when some other industries experienced job losses. While the overall state economy posted job losses in both 2002 and 2003, restaurant industry employment continued to grow. Clearly, the restaurant industry plays a critical role in providing jobs to the Minnesota economy.
In the two years since the 2005 minimum wage increase took effect, full-service restaurant job growth has been at a standstill. The minimum wage increase was a major reason for the decline in good-paying full service restaurant job opportunities in Minnesota.
The federal government and 43 states currently allow for a server wage. Most states allow tipped employees to be paid $2.13/hour to $2.50/hour, substantially less than the state of Minnesota requires, in recognition of servers’ significant tip earnings. This puts Minnesota restaurants at a huge competitive disadvantage with all of our neighboring states.
A recent survey of server compensation shows that waiters and waitresses are making far more than the minimum wage. The average hourly compensation for a server in Minnesota is $15.43 per hour.
Tips ARE wages. One of the injustices of present law is that even though their customers give tips to servers, employers must still pay FICA (social security tax) and unemployment compensation taxes on these gratuities. In fact, tips are considered wages by Social Security (FICA), Federal Department of Labor, Federal Unemployment Taxes (FUTA), Internal Revenue Service, Minnesota Workers’ Compensation, Minnesota Unemployment Compensation (SUTA) and the Minnesota Department of Revenue. The only instance in which tips are not considered wages is by the state when determining minimum wage compensation.
The discrepancy between tipped and non-tipped employees in a restaurant causes significant friction among staff. When the state mandates a wage increase, already well-compensated servers get an increase in pay. Back-of-the-house employees, on the other hand, will not receive increases because they are already earning more than the minimum wage (on average, above $8-$10 per hour) and any additional payroll dollars the restaurant has available must now go to pay the tipped employees.
Many chain restaurants have been reluctant to enter and expand in the Minnesota market over the last several years, and several established independents have closed. This is due in large part to labor costs in Minnesota that far exceed those in other states.