Guest: Count restaurant tips in minimum-wage debate
Many restaurant and bar owners are concerned about the possibility of an ill-conceived minimum wage plan based on ideology instead of practicality, especially when it comes to how tips are counted, writes guest columnist Rich Fox.
Special to The Times
AFTER 22 years working as a server and bartender, I became a restaurant owner in 2011. It was a group effort, made possible by combining the finances and experience of longtime industry friends with the support of brave investors — a familiar story in the bar and restaurant business.
Two years later, relying again on loans and investors, we opened our second restaurant and now employ 140 people.
Our hope is that we can sustain these establishments and jobs, and continue to invest in the local community.
The Seattle debate about raising the city’s minimum wage to $15 per hour has left many restaurant and bar owners and employees hopeful for a pragmatic policy. We’re also concerned about the possibility of an ill-conceived plan based on ideology instead of practicality, especially when it comes to how tips are counted.
Currently, all Seattle employees are paid at least the state minimum wage of $9.32 per hour. Servers, bartenders and other employees who receive tips make additional income on top of that wage, and the amount of tips can be substantial.
Our tipped employees reported $1.5 million in tips in 2013. Much of the debate around the minimum-wage increase is whether to count these tips toward a potential higher local wage of $15.
Whether the $15 wage takes effect immediately or is phased in over three or five years, we are potentially adopting an increase in absolute dollars greater than all of the Washington minimum wage increases of the last 25 years combined. Such a leap forward, from a position of already having one of the highest minimum wage levels in the country, is unprecedented.
For our two restaurants, such a leap could have two very different outcomes. If tips were not recognized as income under a new minimum wage, our payroll would increase by $910,000. Eighty-two percent of that increase would go to a group of employees who averaged $23 per hour in 2013 when counting wages and tips. Tip income is taxed, reported to the IRS, appears on W-2 forms and is used by the state to calculate things such as unemployment benefits.
If tip income were counted toward a new minimum wage, our business costs would increase $164,000. The money would go to those who don’t receive tips and currently make a flat wage of less than $15.
This stark difference is what faces Seattle restaurants and bars of all sizes — a sweeping, massive, perhaps insurmountable increase on one hand or a focused, sizable, yet manageable increase on the other.
The state already guarantees a solid wage for tipped employees, currently the highest effective tipped wage in the U.S. when cost of living is considered. U.S. Department of Labor data show that five of the top 10 paying metro areas for servers in the entire U.S. are located in Washington, and Seattle-Bellevue-Everett ranks No. 1 in the nation. The state minimum wage will continue to adjust for inflation every year.
Many restaurant and bar owners, and I are advocating for tips to be counted as income toward an increased Seattle minimum wage. Tipped employees would continue to be paid the state minimum wage, provided their tip income is greater than the difference in wages. If a worker’s tip income is smaller than the difference between the state and city minimum wage, he or she would be additionally compensated. We support an enforcement model that guarantees this protection.
Acknowledging these substantial earnings would protect the jobs of all our employees, tipped or not, and diminish cost-saving cuts to hours or shifts. It would minimize inflationary actions that would affect all Seattle residents and visitors.
We are about to embark on a noble experiment, one that much of the local restaurant community is ready to firmly support provided we are given the ability to help those who are truly in need. This extraordinary intention deserves an extraordinary policy.
Rich Fox is part-owner of Poquitos and Von Trapp’s restaurants in Seattle’s Capitol Hill neighborhood. He began working in restaurants as a busboy in 1988.