The issue of a tip credit — or penalty — dominates testimony at a public hearing
For months, the key sticking point for many would-be supporters of a municipal minimum wage has been the issue of a tip credit — or tip penalty, depending on which side of the debate is framing the issue.
It was no surprise, then, that tips were easily the most-discussed topic during a June 22 public hearing on a proposed ordinance that would raise the minimum wage to $15 for all Minneapolis workers by July 1, 2022. Nearly 60 people stepped to the podium to testify in the first two-and-a-half hours, and dozens more were still waiting to speak. The hearing was one of the last steps for the City Council before it meets again June 28 to make final revisions to the proposed ordinance ahead of a June 30 vote.
Many who testified put the tip credit in terms of their businesses’ very survival.
Heather Bray, co-owner of The Lowbrow restaurant in Kingfield, said her customers “make budget-conscious decisions” when they choose to dine at her restaurant. If rising labor costs for her 43 employees forced her to hike menu prices, many customers would seek out cheaper dining in the suburbs, Bray predicted.
“I fear everything we have worked so long and hard for would crumble,” she said.
Bray said cooks and dishwashers at her restaurant already earn at least $15. A tip credit would allow restaurant owners to continue paying bartenders and servers lower hourly wages — as little as the state’s $7.75 minimum wage for small businesses — counting on tips to make up the difference. At the hearing, many servers testified that they earn much more than $15 an hour when tips are part of the equation.
Allison Rose, a bartender, testified that she was not opposed to a higher minimum wage as long as it included a tip credit. Rose said her earnings average $38 an hour, but said “no one who would do (her) job” if her employer adopted a no-tipping format — an outcome some in the restaurant industry say is an inevitable compromise when rising labor costs drive up menu prices.
Many of the fiercest advocates for a $15 minimum wage, including Minneapolis’ local chapter of 15 Now, oppose the carve-out for tipped employees.
That group was part of the coalition that attempted to place a municipal minimum wage charter amendment on the ballot last fall. That ballot question was blocked by a state Supreme Court ruling, but City Council members credited advocates with pushing them to the brink of passing an ordinance this spring.
Dozens of “one fair wage” supporters rallied on a lower level of City Hall before climbing the stairs and marching toward council chambers. Several hundred people filled the third-floor hallway before and during the meeting, with both pro- and anti-tip credit groups shouting chants and slogans.
Struggling with low wages
It wasn’t just business owners who framed the minimum wage issue in terms of survival. Among those who testified were low-wage workers, many with children and families to support, who said they struggled to make ends meet with multiple jobs.
About 71,000 Minneapolis workers earn less than $15 an hour, and a city-commissioned study found that Latino and African-American workers are overrepresented in low-wage jobs. They stand to benefit most from a wage hike.
Kelly Dunn, a nurse aide, said a $15 minimum wage would help her get off government assistance. Dunn, a mother, said she was living in the Drake Hotel, sometimes referred to as a substitute shelter because it’s often a temporary home for people facing housing instability.
“I see a lot of families that are in the situation I’m in now that do struggle,” she said, adding that a minimum wage hike would “really help” women with children.
Sondra Williams, a single parent, said she hadn’t seen her children since the previous day because she has to juggle two low-paying jobs, one at Cub Foods and the other at SuperAmerica.
“Fifteen dollars an hour would help me and other single parents,” Williams said. “I’m struggling and I’m doing the best I can.
“I don’t sleep much. I’m always at work.”
Liam Davis Temple, a 2016 Edison High School graduate, testified against the draft ordinance’s training wage for youth workers, allowing business owners to pay them 85 percent of minimum wage for their first 90 days on the job. Davis Temple argued that low-income families often rely on teens and young adults to contribute financially, but that the ordinance as written would leave them behind.
“We will never close this gap by creating more inequity,” he said.
Adjusting business models
The draft ordinance calls for higher wages to be phased-in over five years. It also creates two business tiers, proposing an earlier start to wage hikes at large businesses with more than 100 employees. The wage floor would rise more slowly at small businesses before making a leap in the final year of the phase-in.
More than 90 percent of Minneapolis businesses — including 88 percent of bars and restaurants — have fewer than 100 employees and fall into the ordinance’s small-business tier.
Jennifer Pritchett of the LynLake sex-toy store Smitten Kitten said small business owners like her “owe everything” to their employees. But Pritchett said many are worried they can’t afford a $15 minimum wage.
“I want to be here to show you you can do it as a small business,” she said, explaining that her shop made structural changes — eliminating middle-management positions — so that it could raise wages for all employees to at least $17 an hour.
Pritchett said some of her employees earn more in a year than she does, but added, “That’s what it takes.”
Another small business owner, Robin Anderson of Linden Hills Childcare Center, testified that her business model wasn’t flexible enough to adjust to the demands of the ordinance. Testifying that her take-home pay sometimes falls below $15 an hour, Anderson said it was a “misconception” that all business owners are wealthy and can afford to pay higher wages.
“Our revenue is set for the year,” Anderson said. “It can’t increase. It can only decrease based on enrollment.”
Ricardo Levins Morales, the owner of a South Minneapolis art studio, said a minimum wage hike would bring a “massive infusion of buying power” into the city’s economy. That would be good for his business, Levins Morales said, adding that people who are struggling to afford rent or groceries are going to spend money on necessities before they consider buying art.