Tip credit is just a subsidy to employers from their workers

The minimum wage for Hawaii is $7.25 an hour, or $7 an hour for tipped workers because of the tip credit, which is 25 cents.

What’s a tip credit?

That’s the amount that employers can deduct from a tipped employee’s wage because of tips earned. The tip credit amounts to a legally allowed subsidy from the employee to the employer.

The Legislature is now debating whether to increase the minimum wage to as much as $10.10 an hour. But the sticking point seems to be the tip credit. While legislators seem committed to increasing the minimum wage, many of them believe the tip credit should also be increased. They want to be "fair" — but fair to whom?

Tipped employees, mostly servers in restaurants, on average earn about $10 an hour with wages and tips included. This was cited in the state labor director’s testimony on the minimum wage bills. That’s about $20,000 a year, if the employee works full time, although most servers don’t.

Even accounting for servers at higher-end restaurants, the range for tipped employees may be upwards of $40,000 to $50,000 a year, based on Chamber of Commerce testimony on these bills — hardly making the employee "rich." At best, these servers are considered part of the middle class, earning a decent living to support themselves and their families so they need not rely on government support. Indeed, those at the lower end of the wage and tip scale are likely receiving food stamps, Medicaid, and free and reduced school lunch for their kids.

In fact, the average median income (AMI) used as a threshold for affordable housing is $82,600, according to the federal Department of Housing and Urban Development. Low income in affordable housing circles is 60 per cent of AMI, which calculates to about $50,000. So a few servers, whom some employers consider "highly compensated" with an annual income of $50,000, could actually qualify for affordable low-income rental housing.

It’s no wonder that many people who have jobs are homeless. Their earnings, some at minimum wage, just cannot keep pace with the rising cost of living in Hawaii.

In testimony at legislative hearings, the chairman of the Hawaii Democratic Party expressed embarrassment that the minimum wage was not raised last year, even with Democrats in control of both houses of the Legislature.

Let’s not have the same thing happen again this year.

Senate Bill 2609 and House Bill 2580 both call for increasing the minimum wage, linking future increases to the Consumer Price Index, and eliminating the tip credit entirely.

Opponents threaten that increasing the minimum wage will kill jobs, but the facts show otherwise. Following the last four increases in the minimum wage, Hawaii’s job count increased, again according to the state labor director’s testimony.

In a proposal to reach agreement on a bill, a tip credit of 75 cents was floated, three times or 300 percent of the current 25 cents tip credit.

A minimum wage increase to $10 is only a 40 percent increase. So proposals to help lift people out of poverty would have far greater benefit for high-end food and beverage establishments.

The amount that the employer could take from the tipped employee would increase from $500 to $1,500. That is based on a 40-hour work week for 52 weeks a year. The tipped employee would end up having three times more money taken by the employer.

Hawaii legislators should support a raise for the lowest wage earners, with no deduction for tips. The chairpeople of the House and Senate money committees should allow the bills to be heard.

Minimum wage workers deserve a raise.