The NewStandard ceased publishing on April 27, 2007.

Tipped Workers Would Fall Through Proposed Wage Floor

by Michelle Chen

Aug. 2, 2006 – A bill approved last week in the House of Representatives promises to raise the federal minimum wage, but one obscure provision has some worried that the purported wage hike actually amounts to a backdoor pay cut for millions of low-income workers.

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To curry votes in the House, Republican leaders tacked a minimum-wage increase onto the Estate Tax and Extension of Tax Relief Act of 2006, which aims to shrink taxes on the estates of wealthy deceased people. The bill would incrementally bring the minimum wage from $5.15 to $7.25 an hour by 2009. But a new analysis by the progressive Economic Policy Institute (EPI) reveals that the last section of the bill specifically strips away existing wage protections from the country’s tipped workers.

The so-called "Tipped Wage Fairness" provision would invalidate any state law that "excludes all of a tipped employee's tips from being considered as wages in determining if [the] employee has been paid the applicable minimum wage rate." In other words, the measure would extinguish state-level laws that entitle waitresses, barbers, cab drivers and other workers to a minimum wage regardless of what they make in tips.

Noting that the wage provision was intended to lubricate a major tax break for the ultra-rich, EPI Policy Director Ross Eisenbrey told The NewStandard: "It is bad enough that a wage increase for the poorest workers in America is being used as bait… It is obscene and shameful that the inheritance tax cuts are being coupled with a provision that will drive wages down for waiters, waitresses, manicurists, hotel maids and other low-wage employees."

A purported raise in the minimum wage quietly strips away existing wage protections from the country’s tipped workers.

According to EPI, the House bill, which passed 230 to 180 last Saturday, would gut several state wage statutes and impose a less generous method of calculating tipped workers’ income.

Currently, Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington exclude workers’ tips from being counted toward the minimum wage that employers must pay. Under the House provision, the tipped workforce in these states would generally default to the weaker federal minimum-wage law, which provides a base wage of just $2.13 an hour. To meet the current national wage floor of $5.15, employers can count tips to make up the difference.

In an example of how the provision would affect workers at current federal wage standards, EPI found that employees in Washington State – where state law mandates that workers be paid a minimum of $7.63 per hour – a tipped worker’s wage floor would drop to $5.15 including tips. In effect, since the employers’ obligation would fall to the $2.13 federal baseline as long as the worker’s tips put their take at or above the minimum wage, the employee would take home $5.50 less per hour.

The federal Fair Labor Standards Act defines a tipped worker as any employee taking in more than $30 per month in tips. Some 5 million workers nationwide fit this category, from housekeepers to parking attendants.

The measure would gut several state wage statutes and impose a less generous method of calculating tipped workers’ income.

Conservative lawmakers, backed by interests in the restaurant business and other tip-heavy sectors, have advocated policies that let employers credit tips toward minimum wage requirements. The rationale is that since many employees make a substantial amount of their income in tips – sometimes far exceeding the minimum wage – applying the regular base wage could pose a needless economic burden for businesses.

EPI’s analysis states that while the House proposal would bump up the wage floor overall, the move to upend state policies that build on federal provisions for tipped workers would mark "the first time in history that the federal government has acted to put a ceiling on minimum-wage levels."

Even groups that have generally supported initiatives to raise the wage floor, like the AFL-CIO and the low-income advocacy group ACORN, have decried the House’s minimum-wage proposal as a political sham because of the attached estate-tax and tip provisions. Both House and Senate Democratic leaders have also expressed opposition. The Senate is expected to vote on the legislation as early as Friday.

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The NewStandard ceased publishing on April 27, 2007.


This News Report originally appeared in the August 2, 2006 edition of The NewStandard.
Michelle Chen is a staff journalist.

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