Legislature(1997 - 1998)
04/10/1997 04:30 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 162 MINIMUM WAGE FOR TIPPED EMPLOYEES CHAIRMAN LEMAN called the Senate Labor and Commerce Committee meeting to order at 4:30 p.m. and announced SB 162 to be up for consideration. MS. ANNETTE KREITZER, Staff to Senate Labor and Commerce Committee, said this bill would allow employers to apply a tip credit to wages due an employee. The federal government and 43 other states allow for a tip credit. Alaska is one of seven states to specifically exclude a tip credit. Alaska statute requires employers pay tipped employees fifty cents more than the federal minimum wage whatever that minimum wage is. SB 162 does not change that. Alaska's current minimum wage is $5.25 which is the federal minimum wage of $4.75 plus the fifty cent requirement for Alaska statute. She explained that a second phase federal minimum wage increase will take effect in September, bumping the minimum wage to $5.65. CHAIRMAN LEMAN asked if this would help alleviate some of the disparities that occur in the restaurant business, especially for tipped employees where the tipped employees are making substantially more than the minimum wage of the non-tipped employees. MS. KREITZER replied that is her understanding from talking to some in the restaurant industry. MR. JACK AMON , Marx Brothers Cafe, said he also represents Cabaret, Hotel, and Restaurant and Retailers Association (CHARR) and the Alaska Restaurant Association. He explained that a unique situation regarding compensation exists in their industry. While minimum wage is set up to guarantee a floor of income for working people, in the restaurant industry minimum wage employees are generally tipped employees, who because of their tipped income, are substantially over minimum wage and often are among the most highly compensated personnel in the restaurant. MR. AMON explained that the federal government has for some years considered tipped income as wages. Because they feel the minimum wage of the Alaskan employees is considerably over the minimum wage, they have asked for a freeze in the cash part of the wage which is currently $5.25 per hour. This still leaves Alaskan people among the highest paid in the country. When the federal government increased the minimum wage last year, it froze the cash portion of the wage under federal guidelines at $2.13 per hour, providing a tip credit of $2.67 per hour. He is only looking for a .40 per hour tip credit in September. He is not in any way trying to cap the minimum wage. Under statute the employer would always be responsible for making sure that the employee earned at least the State's minimum wage. They have documentation showing that tipped employees make $9 - $20 per hour. He didn't know of any other industry that had people on that kind of wage scale that was mandated by the government to give them a minimum wage that was not an across the board wage for everyone. CHAIRMAN LEMAN asked if he could respond to his question to Ms. Kreitzer. MR. AMON explained that dish washers and kitchen help do not benefit at all from this minimum wage increase since their pay scales always put them above minimum wage scales ($6.50 - $8.50 per hour) and actually creates a disparity in the back of the house. SENATOR KELLY said he understands that this legislation would allow as the minimum wage goes up, that everyone would receive the current minimum wage, but tip credit would kick in at $5.25. They would always get the current minimum wage. MR. AMON explained that was correct, and since the tipped income is counted as wages employers are allowed to use that. He said should a tipped employee not generate sufficient income in their tips to meet the minimum wage standards, the employer is still responsible to make up that difference. SENATOR KELLY asked if that applied to the new minimum wage. MR. AMON replied yes, any minimum wage whatever it might be. SENATOR KELLY asked if this was based on an individual rather than pooling tips. MR. AMON replied yes, because even with pooling tips each employee has their own individual reporting requirements to the employer. SENATOR KELLY asked how this would affect the employee's tax reporting responsibility. MR. AMON replied it would have no affect on their tax reporting. SENATOR KELLY asked how the employer gets the cash to make up the difference between the $5.25 and the $5.65. MR. AMON replied they don't take the cash from them; it's just a paper exchange. There's no financial impact on the employee. Number 225 SENATOR KELLY asked if this is adding another exception to the minimum wage law. CHAIRMAN LEMAN replied no and Mr. Perkins, Department of Labor, could respond further on that. MR. CHRIS ANDERSON , Glacier Brew House, explained a sheet comparing wages that he sent the committee. He said they could see that the risk of falling below the minimum wage standard was very slim; and his people are well compensated. He currently estimates about 50,000 hours of tipped employee hours which means this will cost him an additional $20,000 to pay for the increase in minimum wage that will go to his top people and he would like to be able to provide that $20,000 to the most needy people on his staff and that's why he supports this legislation. CHAIRMAN LEMAN summarized that the change in federal law inadvertently creates a greater disparity between the better compensated employees and the lesser compensated employees. MR. ANDERSON agreed. Number 317 MR. BOB GILL, Local 878, said he represents almost 2,000 people in the hotel and restaurant industry. They vigorously oppose SB 162. He explained that many servers are single mothers who must support family who do not make $40,000 - $50,000 per year. Most restaurants and eateries are more moderate priced restaurants than the Glacier Brew Pub or the Marx Brothers Cafe. Many of the people in this State work for less than $10 per hour when you figure in their tips. Many servers are lucky to net between $20,000 - $30,000 per year. Income statistics from the Department of Labor show that a three person family that makes $25,000 per year is considered very low income; $32,000 per year qualifies many for government programs. He said it seems they are trying to get people off the welfare rolls and this bill hurts working people, single mothers, and young children. Servers would have their cash wages reduced .40 per hour as of October 1 and their future wages would be frozen at $5.25 per hour for the foreseeable future. Forty cents an hour equates to $800 per year which could buy diapers, meals, and school clothes for children. MR. GILL said if they were just talking about employees, that he represents, who work at better eateries that is one thing, but the majority of people who spend money in restaurants in Alaska spend it at moderately priced eateries. In that sense they don't have a representative sampling of restaurants. He thought they should be talking about raising the minimum wage and not lowering it, because this, in effect, is another exception to the minimum wage. CHAIRMAN LEMAN said his concern is for the employees who are not tipped employees who may not get an increase or get a benefit program because of this. He asked if he was hearing from people in the back of the house. MR. GILL replied that the people in the back of the house in their contracts are at higher rates of pay. He agrees that they need more, but they do make greater salaries and benefit packages than the unrepresented sector. MR. FRED ROSENBERG, Restaurant Management, Inc. and Red Robin Alaska, said he had submitted excerpts from payroll records showing the dollar value of tips reported to them by individual employees. Based on the reported tips, their servers are making on the low side, $3.75 - $8.09 per hour in tips alone. He said the average check for a person at lunch time is $8.50, and at night it's about $10.50. He said we are one of the very few states that doesn't have tip credit and very strongly supported this bill because it allows business owners to allocate monies where they feel it's appropriate like to people in the back of the house. MR. DWIGHT PERKINS, Department of Labor, accepted the Chairman's offer to come back the next time the bill is heard on Tuesday since a quorum was not present. MR. FRANK ROSE , Alaska Hotel/Motel Association, supported SB 162 because it would help people in the back of the house and other hotel personnel, like desk people, as well. CHAIRMAN LEMAN thanked everyone for their testimony and said SB 162 would be held over until next Tuesday.