Tip credit stymies accord on raise

State House and Senate leaders have reached an understanding on raising the minimum wage to $10 an hour by January 2018 and expanding a tip credit to 75 cents, but an influential state senator wants a debate over the tip credit before signing off on the agreement.

Senate President Donna Mercado Kim and Sen. David Ige, the chairman of the Senate Ways and Means Committee, met privately on Friday with House Speaker Joseph Souki and House Majority Leader Scott Saiki to discuss a minimum wage deal.

Souki informed House leadership about the potential agreement on Tuesday, sources say, while Kim briefed Senate Democrats on Tuesday in private caucus. The minimum wage would increase to $10 an hour over four years, up from $7.25 an hour.

Sen. Clayton Hee, the chairman of the Senate Judiciary and Labor Committee, has objected to the deal because of the expanded tip credit. The tip credit, which businesses can deduct from the minimum wage for waiters and other workers who earn tips, would increase to 75 cents, up from 25 cents.

The size of the tip credit was the main stumbling block to a minimum wage increase last session.

Hee and Rep. Mark Nakashima, the chairman of the House Labor and Public Employment Committee, have moved new bills this session that would raise the minimum wage but eliminate the tip credit entirely. Hee’s and Nakashima’s bills would also tie the minimum wage in the future to the Consumer Price Index, a provision left out of the potential agreement between House and Senate leaders.

Hee wants Ige to hold a committee hearing on Hee’s new minimum wage bill, where a tip credit could be debated. Hee said he might be willing to drop his earlier warning that he would not give prior concurrence to Ige’s committee to change the tip credit and Consumer Price Index provisions of his bill.

"In my opinion, a tip credit is a revenue enhancement for employers," Hee (D, Heeia-Laie-Waialua) said Wednesday. "It works like a tax credit but it’s not a tax. So my view is if the Legislature wishes to provide some kind of financial relief in the form of a tax credit, it ought to do so — straight up — and not disguise it as a tip credit."

Hee said, however, that negotiators should be able to reach a compromise. "But the compromises should be based on sound logic, and should be defendable," he said.

The state Department of Labor and Industrial Relations has said that the average tipped worker in Hawaii earns $9.87 an hour including tips, and that tipped workers are more likely to live under the federal poverty line. Waiters and servers, according to the department, earn an average of $26,280 a year, or $12.64 an hour. The average for all workers is $44,786 a year, or $21.53 an hour.

House and Senate leaders would like to reach an agreement on the minimum wage soon to avoid potentially difficult conference committee negotiations at the end of session.

Kim (D, Kalihi Valley-Moanalua-Halawa) and Ige (D, Pearl Harbor-Pearl City-Aiea) have been tagged as the reason a minimum wage increase did not pass last session, because Ige, in particular, wanted a higher tip credit. Ige has suggested that negotiators simply amend the bill that was left over from last session instead of moving new bills through the legislative process.

But several sources involved in the negotiations say that House and Senate leaders do not want to usurp the prerogative of committee chairmen — especially Hee — who have jurisdiction.

"We want to get it wrapped up right away. The sooner the better," Souki (D, Waihee-Waiehu-Wailuku) said. "But it’s now in the hands of the Senate."

Nakashima (D, Kukuihaele-Laupahoehoe-North Hilo) said lawmakers want a resolution. The state’s minimum wage has not been increased since 2007. "We don’t want to be stymied like we were last year," he said.

Eighteen labor, progressive and social-service advocacy groups, including Unite Here! Local 5, Catholic Charities Hawaii, and the League of Women Voters Hawaii, signed letters on Wednesday to senators on Ige’s Senate Ways and Means Committee calling for a hearing on Hee’s minimum wage bill.