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House's Minimum Wage Bill Cuts Wages for
Tipped Employees in Seven States by as Much as $5.50 an Hour
When
is a Raise Not a Raise?
By ROSS EISENBREY
The Estate Tax and Extension of Tax
Relief Act of 2006, H.R. 5970, which passed the House on July
29, raises the minimum wage for most employees. But for many
employees in seven states, H.R. 5970 means a wage cut.
Section 402 of the bill strikes down state laws that require
employers to pay a full minimum wage without relying on tips
from customers to reach the minimum level.1 States that have
those laws will see the minimum wage for tipped employees fall
as much as $5.50 per hour.
Seven states-Alaska, California,
Minnesota, Montana, Nevada, Oregon, and Washington-exclude, in
the words of H.R. 5970, " all of a tipped employee's tips
from being considered as wages in determining if such tipped
employee has been paid the applicable minimum wage rate."
According to Section 402, therefore, the "minimum wage rate
provisions" of those state laws may not be enforced "with
respect to tipped employees." Tipped employees (defined
as any employee who earns more than $30 per month in tips) would
be left without any minimum wage protection under state law in
those seven states.
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.
Nationwide, more than 5 million
employees work in occupations where tips are common, including
taxi drivers, food and beverage servers, hotel porters and housekeepers,
manicurists, and hair stylists, to name a few.
H.R. 5970 is the first time
in history that the federal government has acted to put a ceiling
on minimum wage levels, rather than establishing a national floor
from which the states can make improvements.
Section 3(m) of the Fair Labor
Standards Act of 1938 (29 U.S.C. 203(m)) is amended-
(1) by redesignating paragraphs
(1) and (2) as subparagraphs (A) and (B), respectively;
(2) by striking `Wage' paid
to any employee' and inserting `(1) `Wage' paid to any employee';
(3) in subparagraph (B) (as
so redesignated), by inserting before the period the following:
Provided, That the tips shall
not be included as part of the wage paid to an employee to the
extent that they are excluded therefrom under the terms of a
bona fide collective bargaining agreement applicable to the particular
employee'; and
(4) by adding at the end of
the following:
(2) Notwithstanding any other
provision of this Act, any State or political subdivision of
a State which on or after the date of enactment of the Estate
Tax and Extension of Tax Relief Act of 2006 excludes all of a
tipped employee's tips from being considered as wages in determining
if such tipped employee has been paid the applicable minimum
wage rate, may not establish or enforce the minimum wage rate
provisions of such law, ordinance, regulation, or order in such
State or political subdivision thereof with respect to tipped
employees unless such law, ordinance, regulation, or order is
revised or amended to permit such employee to be paid a wage
by the employee's employer in an amount not less than an amount
equal to-
(A) the cash wage paid such
employee which is required under such law, ordinance, regulation,
or order on the date of enactment of the Estate Tax and Extension
of Tax Relief Act of 2006; and
(B) an additional amount on
account of tips received by such employee which amount is equal
to the difference between the cash wage described in subparagraph
(A) and the minimum wage rate in effect under such law, ordinance,
regulation, or order, or the minimum wage rate in effect under
section 6(a), whichever is higher.'
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