2017-03-02 / Editorial

What is the tip credit and how does it work?

Legislative Lowdown
by Rep. Martin Grohman

In November 2016, a significant majority of voters, including many in Biddeford, agreed to increase the minimum wage in Maine. The ballot question asked: “Do you want to raise the minimum hourly wage of $7.50 to $9 in 2017, with annual $1 increases up to $12 in 2020, and annual cost-of-living increases thereafter; and do you want to raise the direct wage for service workers who receive tips from half the minimum wage to $5 in 2017, with annual $1 increases until it reaches the adjusted minimum wage?”

It was really two questions wrapped in one.

The first part was a fairly straightforward increase in the minimum wage, raising it $1 per hour each year until it hits $12 per hour in 2020.

The second part, which makes reference to the direct wage, is much more complex. Under federal law, workers who rely on tips may be paid a portion of the minimum wage by their employer (the “direct wage”) and receive the balance in tips (the “tip credit”). There is also a safety net in place to cover slow shifts. For example, if a snowstorm prevents diners from eating out, employers are required to compensate servers so that they receive full minimum wage, to replace any decrease in tip income. Tips in excess of minimum wage are retained by the servers.

The tip credit is in place for every state east of the Mississippi and is used by many types of employers, including hotels, pizza delivery shops and valet parking lots, but has been most beneficial for the restaurant industry, a sector that is among the strongest and fastest growing in Maine. The tip credit helps reduce permanent payroll costs and allows small restaurants to hire more servers. The elimination of the tip credit for service workers, now underway in Maine, will result in an increase in the cost of employing service workers over the next few years, and will arguably have a negative impact on the livelihoods of small business employers. It’s not about tipping. Servers earn and deserve every penny they take home. This is about employment opportunities and the competitiveness of Maine businesses, allowing them to keep prices down and compete with other New England states.

However, there are two significant counter-arguments against the practice of tipping and the tip credit. First, that working for tips increases the likelihood of sexual harassment in the workplace. Second, that states that do not have the tip credit wage structure (California, Oregon, Washington, Minnesota, Montana, Nevada and Alaska) have stronger growth and lower unemployment than the rest of the country.

What is your opinion? As I often do, I am supporting a moderate, compromise position. It would continue to increase the direct wage but not eliminate the tip credit. However, no votes have been taken, and I would love to hear more at facebook.com/repgrohman, on my home phone at 283-1476, or via email at martin.grohman@legislature.maine.gov.

Rep. Martin Grohman (D-Biddeford) is serving his second term in the Maine Legislature. Outside the legislature, he is chairman of the Solid Waste Commission in Biddeford, and the owner of a small company called Hellocycle which does alkaline battery recycling by mail.

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