Legislature(1997 - 1998)
04/14/1997 03:17 PM House L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 237 - MINIMUM WAGE FOR TIPPED EMPLOYEES CHAIRMAN ROKEBERG indicated that the committee would consider HB 237, "An Act relating to payment of minimum wages to tipped employees; and providing for an effective date." He noted that this was a committee bill by request and he referred the committee to the Marx Bros. Cafe letter dated April 10, in the committee packet. Number 521 JACK AMON, Partner, Marx Bros. Cafe, Anchorage, came forward to testify on HB 237. He spoke in support of this legislation on behalf of the Alaska Cabaret Hotels Restaurants and Retailers (CHARR). This legislation allows employers of tipped employees to use a portion of their tipped income to satisfy hourly requirements under the Federal Minimum Wage Guidelines. He gave a brief history regarding these efforts. MR. AMON continued that minimum wage was established in 1938 by the Roosevelt Administration under the Fair Labor Standards Act. Its intent was to establish a liveable wage for workers in the manufacturing industry. It was not extended to tipped employees until 1967, at this same time the federal government included tipped employees under the minimum wage requirements. They also enacted a tipped credit which is still on the federal government books along with 43 other states. MR. AMON submitted a chart to the committee which shows how a tipped credit works and how this situation is handled in 43 other states. He referred to this chart entitled, "State Wage Laws." This chart reflects how tipped credits work on the federal level and each of the states. On the first line, federal numbers are outlined for minimum wage, which is $4.75 per hour. The tipped credit is the amount of tipped income that an employer, following the federal guidelines, can use to satisfy the minimum wage. The cash wage is the minimum wage that employer must pay. If someone is in a state that follows federal law, for example, Alabama which doesn't have an applicable law, they would follow federal legislation. An employer in this situation is required to pay an hourly wage of $2.13 an hour and would be allowed a tipped credit of up to $2.62 an hour. MR. AMON added that many states provide anywhere from 50 percent of the cash wages of tipped income to 23 percent. Some put a cap figure on this. He stated that an important feature of this legislation is that it in no way exempts the employers from the minimum wage and in no way does it cap the state's minimum wage. Any employer cannot take a credit for tips that were not earned and reported by that employee. If any employee does not make enough in tipped income to satisfy the state's minimum wage requirement then the employer is responsible for the difference. In no way, under enactment of this statute, would an employee ever earn less than the state's prevailing minimum wage, whatever that may be. Nor does it change the state's differential which is 50 cents higher per hour than the federal minimum wage. MR. AMON noted that what CHARR is seeking to do with this legislation is to cap the cash portion of the wage that an employer would pay at $5.25 an hour. This is 240 percent above the federal requirement presently. When the minimum wage goes up again in September, Alaska would have a tipped credit of 40 cents an hour. Number 707 CHAIRMAN ROKEBERG noted the two handouts in the committee packet published by the IRS called "Tips on Tips." He asked Mr. Amon to explain briefly the procedures under the IRS rules, whether there is a daily requirement for recording. This provision provides that an individual will never receive less than the minimum wage and is easily accountable because of the requirements of the IRS. MR. AMON stated that the IRS requires all employees to report 100 percent of all tips earned in a restaurant. The tips are usually accounted for on a time card that the employee submits. By correlating the amount of hours worked and the amount of tipped income reported it would be very easy to discern how much per hour an employee made. The reason they seek this relief, is that the IRS has precipitated this formula because not only do they treat tips as wages for withholding purposes, but tips are also treated as wages for matching FICA and FUDA amounts. "We feel if we are being, making a payroll matching amount, we have a payroll burden on tipped income then we feel that they are wages and we should be able to count them in our compensation packages." He pointed out that tipped employees generally are well above minimum wage and from additional testimony it will be shown that these hourly wages range from $8.00 to $20.00. Number 806 CHAIRMAN ROKEBERG reiterated that "Nobody's going to get 'rooked or gypped' out of their wage on a daily basis because they had a bad day, it snowed bad, they didn't have enough customers, their going to be fully compensated the Alaska statutory minimum wage if they had no tips that day." MR. AMON stated, "absolutely." An employer would be required to make up the difference on a daily basis. He assumed that this would be addressed in regulation. Number 857 REPRESENTATIVE RYAN asked what this would do to Worker's Compensation Insurance costs if an employer is required to contribute to an employee who nets $20.00 per hour. MR. AMON responded that when an employer conducts their Worker Compensation audit, gratuities are excluded from a Worker's Compensation audit. This would help keep Worker's Compensation amounts from going up. Number 890 REPRESENTATIVE RYAN asked if there was a general average among restaurants regardless of their characteristics, such as a fast- food business and a more formal establishment, as to a gross or a net, a margin in order to determine what the restaurant's expenses are, etc. MR. AMON responded that on a statistical analysis provided by the National Restaurant Industry Operations Report, profitable restaurants run anywhere from the lower quartile of net operating profit of 5 percent to a high of an upper quartile of 7.9 to 8.0 percent. These restaurants operate on slim margins that are quite labor intensive. It takes a lot of people to run a restaurant. "You have to really generate a 10 to 1 sales to bottom line relationship." If a restaurant has a $4,000 increase in costs they would have to generate $40,000 to put themselves back in the same spot. Number 949 REPRESENTATIVE HUDSON stated that he was contemplating this issue on Workers Compensation. He could certainly see where the added cost for Workers Compensation Insurance would benefit "a place." He wondered what affect this would have on the workers who would have to collect for some reason. He affirmed that this compensation would be figured on the basis of the Alaska minimum wage. MR. AMON stated that when an insurance premium is considered the payroll is figured by allowed subtracted gratuities and overtime compensation. This is in accordance with current law. Number 1000 REPRESENTATIVE COWDERY asked what the hours worked were for a normal shift in a restaurant. MR. AMON responded that this shift is anywhere between 6 and 8 hours. On average a waiter or waitress work 35 hours a week. Number 1014 REPRESENTATIVE COWDERY asked about full service restaurants and assumed there were more tips to be made in these establishments. MR. AMON noted that the upcoming testimony would shed light on this issue. A representative from the Red Robin Restaurant in Anchorage would address this common misperception. While each table might generate more tips they do considerably less volume. Say for example, the restaurant Gwennie's, their tipped employees are doing better in this establishment than someone in the Marks Bros. Cafe. because of the volume they generate. Number 1049 REPRESENTATIVE COWDERY asked how many persons would a waiter or waitress serve during a normal shift in Mr. Amon's establishment? MR. AMON responded that their restaurant was unique since they have a team operation. They probably average about 20 individuals an evening. Number 1075 REPRESENTATIVE COWDERY asked what the average tip was in his restaurant in regards to the average meal served. MR. AMON responded 15 to 20 percent. Number 1112 CHAIRMAN ROKEBERG asked if any employee in the Marx Bros. Cafe made minimum wage. MR. AMON responded, "no, sir." Number 1124 CHAIRMAN ROKEBERG also confirmed that Mr. Amon was a national board member of the National Restaurant Association. He also asked if Mr. Amon had any idea how many tipped employees there are in the state of Alaska. MR. AMON stated he had no idea how to answer this question. Number 1154 REPRESENTATIVE COWDERY asked what the Marx Bros. Cafe employee turnover was. MR. AMON said they have not had much turnover. Their wait staff goes through a major turnover every two to three years. Currently their newest waitress has been with them for a year and some of them have been there from four to five years. Number 1213 ROBERT GILL, Secretary/Treasurer, Hotel Employees and Restaurant Employees Union (HERE), testified via teleconference from Anchorage on HB 217. This union represents approximately 2,000 employees throughout the state of Alaska and they are vigorously opposed to this bill for numerous reasons. Although there are many servers who do make an excellent income the vast majority of servers in the state make $20,000 to $30,000 a year. According to the Alaska Department of Labor statistics, a family income of $25,000 is considered extremely low. The same could be said of $30,000. This tipped credit bill will serve to increase the welfare rolls and not serve to take people off of welfare. With the new five year welfare rolls they need incentives to get people off of welfare and back to work. He thought it was a great thing that Alaska had a 50 cent tie in with the federal minimum because of the higher cost of living in Alaska. MR. GILL continued that 40 cents cash reduction in wages a year constitutes $800 a year which constitutes food, clothing and housing for Alaska citizens. This bill would freeze the tipped credit at $5.25. There are so many unemployed single mothers who are trying to get off welfare and work. Many work at places such as Denny's, Village Inn, etc., which are not represented by the Hotel Employees and Restaurant Employees Union. Very few have health and welfare benefit packages, as do the union hotels and union restaurants. They feel that this tipped credit law will not serve the people of the state of Alaska well. If everyone in these situations were making $50,000 a year, he would probably not be opposed to this legislation, but the fact is most people make between $20,000 and $30,000 a year which is considered very low to low income. He noted that there was no reference in this legislation to collective bargaining agreements. "I presume it's the intent of the bill not to prohibit minimums much higher than that." He suggested that collective bargaining be referred to in the statute. Number 1435 REPRESENTATIVE HUDSON asked if Mr. Gill represented the lion's share of the employees within these restaurants that are in the non-tipped category, that is the employees who are cooks, etc., who work strictly for salary. MR. GILL responded that yes he did. At the union hotels the disparity in wages between the front of the restaurants and the back is not as great. Many of their cooks and dishwashers make $10.00 to $13.00 an hour. The disparity is not as great as it is in the non-union hotels. In his negotiations he always addresses this disparity. Number 1522 REPRESENTATIVE HUDSON stated that he was trying to understand what, with the passage of the minimum wage as adjusted for Alaska, was some of the information he has received is that all of the restaurants and food service folks within the industry are confronted with $70,000 a year of added costs. This has to come out of the bottom line, if it does this could have a negative impact on those non-tipped employees and it was for this reason that he was attracted to this legislation. He felt it would provide some opportunity for the owners of these establishments to upgrade the salary of the non-tipped employees. He thought that since Mr. Gill represents them, Representative Hudson thought he would have some sympathy on their behalf. MR. GILL responded that he does have some sympathy for them. So many of the servers in the state work at moderate priced restaurants. He could say unequivocally that if every server in the state made the type of income at Mr. Amon's restaurant which is a higher cover cost, "but there are so many people who work in the state that work at places that are like Denny's, Village Inn or Elmers that really do not make the type of income, and they need that protection of that extra 40 cents an hour." Without a union contract there is no guarantee that this 40 cents would go either to the "back of the house" or would go to a benefit package as has been suggested. Number 1736 CHAIRMAN ROKEBERG asked if any of the people that he represents are presently in a tipped employee category? MR. GILL responded about 25 percent of their 2,000 members are in the tipped category. Number 1760 CHAIRMAN ROKEBERG asked if any of these individuals have a wage schedule that is at or below the minimum wage? MR. GILL noted that in some of the houses the employees are at the minimum wage, but not below. He gave some examples of these. He said that many of the union houses are a significant degree higher than the non-union sector and it was his responsibility to make sure that the wage scale of union employees is not undercut. He made the argument that they shouldn't lower the wages in "the front of the house" in order to bring the "back of the house" up. Number 1942 FRED ROSENBERG, Owner, Red Robin Restaurant, Anchorage, testified from Anchorage via teleconference on HB 237. Previously he submitted to Representative Rokeberg an excerpt from payroll records to take an extract of numbers. What they found, based on reported tips (all employees are required federally to report 100 percent of their tips) is that their servers are making from $3.75 per hour to $8.09 cents per hour, just tips. When added to the present minimum wage they make between $9.13 and $13.34 per hour based on the reported tip records. MR. ROSENBERG continued that by comparing his establishment to the more fine dining restaurants with larger customer meal checks, their average check at lunch is under $10.00 and at dinner, it's right around $10.00. The Red Robin also has a larger turnover of customers. He referred to the bottom line information Mr. Amon spoke about in relation to the national standards for profitability in a restaurant. He then quoted the numbers of profitability as previously noted. The Red Robin falls into this range on the low side and part of this is that they try to be a very value oriented restaurant while keeping their prices down. The 50 cent increase in the minimum wage in 1996 reflects $125,000 to his bottom line. His business is making $125,000 less than it was before accounting for 25 to 30 percent of his profit. These are real numbers and he would have to generate over an additional $1 million in sales, which is impossible, just to break even on. MR. ROSENBERG noted that freight expenses are up, food and beverage costs are up and menu prices in no way can keep pace with this. There is no way to operate a small business and still provide a benefit. In order to make a profit they are required to monitor expenses. He conceded that tipped employees do make different wages depending on who they work for, but they do well. It's not possible for them to make up these differences. He also noted that the cost of living in Anchorage was equal with Seattle, even though they have a 50 cent differential in the minimum wage. Number 2265 CHAIRMAN ROKEBERG asked Mr. Rosenberg if he had done anything in his business practices that have negatively impacted his employees because of the last increase forced on them by the federal government. MR. ROSENBERG responded that they are not going ahead with any new benefits. New team members working for them are not in a position to get any of the benefits. They were contributing to medical packages. Outside of Red Robin they started two new restaurants and they haven't been able to afford providing any contribution towards medical or any other benefits. MR. ROSENBERG stated that in their restaurant they do not have anyone who gets paid minimum wage, they pay in excess of minimum wage except for the tipped employees. Their hosts and hostess, dishwashers and cooks are above minimum wage depending on their experience. He said they needed to keep the lid on these types of pay. In their two Red Robin Restaurants they employee 225 people. Number 2477 REPRESENTATIVE RYAN asked Mr. Rosenberg if he would be able to cover future increases in the minimum wage law with any type of cover charge or admittance charge into his establishment. MR. ROSENBERG responded, "not at all." He didn't think any restaurant could and the Red Robin is a very value oriented restaurant. They appeal to people of more modest incomes. There is no way they can afford to try and pass this on through a cover charge to the consumers, especially in light of additional competition. TAPE 97-41, SIDE A Number 001 REPRESENTATIVE HUDSON asked what the average income was of their tipped employees and the range for the non-tipped employees. MR. ROSENBERG gave the numbers again for the tipped employees and the non-tipped employees who make anywhere from $5.50 to $12.00. Number 130 ANGELINA CHRISTIANSEN, Business Representative, Hotel Employees and Restaurant Employees Union, Local 878, testified from Anchorage via teleconference on HB 237. She strongly opposed this bill. There is a reason why the federal minimum wage is higher in Alaska because of the higher standard of living. She noted the figures of $13.00 per hour as the high end for a 40 hour work week, this factors out to $27,000 a year. This is not high income. The exception to the rule are those individuals who make $50,000 a year and she guessed that not even five percent of Alaska servers make this much money. MS. CHRISTIANSEN continued that she has two children and is a single mother. She said that she's been on welfare before. Her day care bill alone for two children is $1194.00 a month. In reference to the comments made by the two previous restaurant owners who claim they pay their tipped employees above minimum wage, she wondered why they didn't pay them the minimum wage rate now if their costs are so high, especially since these employees are making the wages they claim. She also noted that most of the servers work more than one job and live paycheck to paycheck. Ms. Christiansen stated that they're trying to help people get off welfare. She noted that an individual should be able to depend on their paycheck. No one can depend on regular tips. She added that it's 40 cents this year, but what will it be next? Number 335 REPRESENTATIVE RYAN wondered if he had missed something in Mr. Amon's testimony regarding the fact that nobody could make below the minimum wage. Chairman Rokeberg said that this was correct and that's what the bill says. MS. CHRISTIANSEN also agreed, but she figured if an employee is making less than the minimum wage, including their tips, the employer is required to make up the difference. She offered, who could live off of minimum wage much less a single mother? Number 419 WILLIAM J. CULLINANE, Owner, Inn at the Waterfront, Juneau, came forward to testify on HB 237. He noted that Juneau has two seasons, the legislative season and the tourist season. He supports this legislation. He thought it made good economic and social sense. It simply recognizes the fact of what 43 other state legislatures have figured out. He asked how many politicians could be wrong. This legislation will help strengthen the restaurant industry. It will help with planning what labor costs will be for a particular time period and he thought it would generate more jobs in the industry. The restaurant industry is very competitive and it's marginal. The only way to improve a restaurant is through service and good tips are a reflection of this. Tips are income and it should be counted as such. MR. CULLINANE continued that their restaurant is a fine dining establishment. One of his employees makes 22 percent of the overall sales they singularly generate yearly. He also has some employees at 15 percent. Generally, this translates into $15.00 to $20.00 per hour. Usually in the summertime an employee will make between $120 to $125 per night and federal employment taxes must be paid on these amounts. He felt this legislation was long overdue. Number 691 THERESA PEREZ, Waitress, testified from Anchorage via teleconference on HB 237. She felt ambivalent about this legislation since she's not getting the answers that she'd like to hear. She inquired about the $5.25 figure as allotted for in the legislation and wondered if this would stay at this amount forever. If the minimum wage goes up, will this amount go up too? In the Lower 48 she was making $2.01 an hour and she was afraid that this figure of $5.25 would stay in effect for future generations. She said she'd be more than happy to give the 40 cents an hour to her boss as long as this amount is returned in the form of benefits or to the staff in the "back of the house." She didn't understand why tipped employees should be punished for making tips. CHAIRMAN ROKEBERG asked if she tipped some of the staff she worked with such as bus people, etc. Number 820 MS. PEREZ said that she did. She noted that without these individuals working for her she wouldn't make her tips. She urged the committee to be fair to the tipped employees and noted that she really depends on what she makes in tips. REPRESENTATIVE HUDSON stated that he believed by law that there is no way that the wages of these employees would go below minimum wage. This has been testified to. The only reason this legislation is before them is because of an increase in the minimum wage which adds pressure to the employer. This bill guarantees minimum wage and provides an offset to keep restaurants in business. As a result this provides job opportunities. Number 904 CHAIRMAN ROKEBERG asked Ms. Perez what she averaged in wages an hours. MS. PEREZ said she would not tell the committee this, but she wished to note that when the minimum wage goes to $5.65 then will "it" go up also? REPRESENTATIVE HUDSON stated yes. MS. PEREZ asked if there was any way for the employer to prove that they have done something constructive with the 40 cents an hour taken from each tipped employee to benefit the entire restaurant staff. She wanted to make sure that somehow the employees in the "back of the house" would benefit from this legislation. Number 957 CHAIRMAN ROKEBERG responded that there was nothing in the legislation to mandate an employer to prove what the money is used for. Number 1018 CHRIS ANDERSON, Owner, Glacier Brew House in Anchorage came forward to testify on HB 237. He stated that he has installed an insurance program at his restaurant and it's probably one of the finest in Anchorage. He supports this legislation. Within the last year the two increases in wages have cost him an additional $60,000. He's been in operation for nine months and he hasn't made it to a quadrant yet to realize a profit. This is not about making profits for himself, he doesn't look at this as something to take away from staff. He wants to be able to maintain his benefit program and to ensure that employees on the lower end are getting compensated. Every year he runs 70,000 man hours of tipped employees. He needs to put the relief on his non-tipped crew members, his line cooks, dishwashers, etc. He's very pleased with his sales and the fact that his employees are doing well. His dinner servers average $18.00 an hour, lunch $12.00 an hour. MR. ANDERSON continued that the way these employees make more money is by getting more guests in the restaurant, to provide more sales and to keep them busy. This happens by keeping prices low and being competitive. In order to do this he needs a staff to cook this food that are competent and capable. He pays his cook staff well and he'd like to keep doing so, but he weighs this against the bank's demands. He added that when he takes a $60,000 hit in wages within his first year of operation followed by approximately $50,000 in benefits for insurance alone, he stated that a quadrant for profit seems hard to find. He realizes that it's a challenge to raise well over $1 million in increased sales in his first year of business. Number 1182 REPRESENTATIVE HUDSON asked how many people did Mr. Anderson employ in his restaurant. MR. ANDERSON responded about 80 full time and seasonally, 110. Number 1193 REPRESENTATIVE RYAN asked how much an increase would it take to price himself out of the market and no longer be able to compete. MR. ANDERSON responded that this was a tough question. He felt that if the wages go up along with everyone else, they're in the same boat. For his business, a small increase could become a problem. He targeted a certain guest check average when he opened the restaurant in order to position himself in a segment of the market. By raising the guest check to cover costs this puts him in a segment where his guest counts decline. He works on volume. If he doesn't do a lot of volume, he doesn't make money. Number 1249 CHAIRMAN ROKEBERG asked what the average number of hours his staff works. MR. ANDERSON responded that in the summer time a server could work 40 hours and more, an average of 35 to 40. In the wintertime between 30 and 35 hours for dinner and roughly about the same at lunch time, maybe a little less. He outlined again the cost to payroll with the increases in minimum wage for Chairman Rokeberg. He noted that he would have to increase his gross sales by 25 percent to make up for this 40 cents an hour increase. He added that he will be very profitable in about five years from now. MR. ANDERSON continued that he had budgeted for this initial 50 cent increase in his annual plan. He did nothing different because he's looking at top line sales right now. He's in a brand new business and he has no plans to reduce benefits and costs. He's been open a year now, has a track record and will look to see where he can make this up. He'll have to take some preemptive action on this next increase of $30,000. In the future, when he looks at wages on an annual basis for his cooks, he might not be able to apply the same type of raise he'd like to apply without this $30,000 going to the "front of the house." MR. ANDERSON added that a lunch server at the BrewHouse makes approximately $12.50 an hour. A dinner server may make up to $18.00 an hour on an average. It is their policy that a tipped employee reports 100 percent of their tips. Number 1488 REPRESENTATIVE COWDERY wondered what made the difference between how one restaurant made more money than the other. MR. ANDERSON responded that they needed to address minimum wage. A minimum wage earner makes $10,900 per year. They're talking about individuals who make in-between low-end $15,000 and top-end $30,000 or $40,000. He said that he intends to compensate his high end employees with 5 percent increases every year, although he was more concerned about his dishwasher and his entry-level line cook at $8.00 an hour. He wanted to make sure they continued to receive insurance, crew meals, etc. He wanted to be able to give the higher end employees more money, but felt he could do so by putting more customers in the restaurant and attractive pricing to keep his business alive. Number 1580 REPRESENTATIVE COWDERY assumed he attributed some of this success to the good service his staff provides. MR. ANDERSON said he has a wonderful staff that opened a restaurant under very difficult situations. He wouldn't trade one of them for anything. He noted his turnover was very low. Number 1613 DWIGHT PERKINS, Special Assistant to the Commissioner, Department of Labor came forward to testify on HB 237. He cited some statistics from the department and mentioned that the Commissioner has some concerns with this legislation. They found that in 1995, 5,900 persons earned the majority of their wages including reported tips for that year as waiters or waitresses. These workers earned an average from all reported sources, including other occupations, of $6,667.00. This figure includes anyone who worked even a day as a waiter or waitress. They don't mean to represent this as an average wage for year round food service. MR. PERKINS continued that to obtain a better number they ran a check on all workers employed as waiters and waitresses in all four quarters of 1995 and came up with 1500 individuals who earned an average for the year of $12,213.00. Of this, 75 percent of the 1500 earned less than $16,139.00. This is also an imperfect measure and it does not mean that individuals were employed for full time, year round, only that they were employed as servers at some point in each of the four quarters of the year. MR. PERKINS stated that the department's mission was to foster and promote the welfare of the wage earners of the state, improve their working conditions and advance their opportunity for profitable employment. The Commissioner has a hard time understanding how this will help the wage earners of the state and didn't think it benefited them. He conceded that there were 43 other states that do allow less than minimum wage or minimum wage to reflect against tips, but this was not a national agenda to have tipped credits toward the employee wages considered. It used to be that Alaskans were proud to say that they didn't give a damn how "they" do it outside. The department felt that this was ill-advised legislation. MR. PERKINS summed up with a last statistic. In 1995, adjusted after inflation, the Alaska average monthly wage has fallen from 1985, at approximately $3100, to $2700 in 1995. The Alaskan worker has been taking hits for the last ten years and still continues to be hit. He stated that the department could not support this legislation. Number 1839 REPRESENTATIVE HUDSON asked if there was any benefit in this or any other leveling measure inherent in this legislation to create jobs which in his way of thinking is one of the justifiable reasons for trying to do something like this. He used examples of restaurants that have gone out of business and the fact that it's hard to make money in this business. If there's any merit to this legislation it's because it provides an opportunity for some private investor to put their money into an eating establishment and with a slight bit of assistance through this type of legislation to not have to absorb these high nationally imposed costs, they may keep these establishments open which creates jobs. This could conceivably maintain thousands of jobs for the state of Alaska which otherwise might not make it. If there are no jobs these individuals won't even make the minimum wage because they'll all be on assistance somewhere. Number 1922 REPRESENTATIVE RYAN stated that he was not trying to be cynical about this situation, but a person averaging $13.20 an hour with wages and tips figures to about $27,500. Legislators are paid approximately $11.54 per hour and for practical purposes they hold the fate of the state in their hands. He is not unsympathetic to labor or the people who are making a living. He didn't want to see anyone do any worse than they are now, but it's been demonstrated with the margins and increased costs to take in additional gross revenues to break even. If incremental costs keep rising there will be a lot of establishments going out of business because they can't afford to pay their overhead. MR. PERKINS stated that this was a difficult issue. One of the analogies he has heard is "we're all in this thing together." This goes to the analogy that the private sector employers should be supporting the public sector raises because if they don't get a raise they won't have that much expendable income and those "drinks on the bar will be sitting there for a while too." In the restaurant industry there won't be as much disposable income in order to go out for dinner. One hand feeds the other. A federally mandated minimum wage increase has been instituted and the restaurant industry wants to take care of this issue on a state level in order to avoid paying the increase by crediting towards tips instead. The department feels that this is a bad piece of legislation. Number 2070 CHAIRMAN ROKEBERG noted that this legislation speaks to a federally mandated and associated raise by his calculation as of October 1, 1996, this affords a 10.5 percent increase to minimum wage earners in the state of Alaska, reflected in the 50 cent increase. September 1 of this calendar year the federal law and concurrent state law would mandate an additional 40 cent increase or 7.6 percent accounting for almost an 18 percent increase in a period less than 11 months. This seemed like a pretty substantial increase for a non-bargained for wage increase particularly to the people they're talking about. He asked what the federal intent is for having a minimum wage. MR. PERKINS responded so that a threshold could be set in order for people to make a living. Number 2128 CHAIRMAN ROKEBERG stated that nobody in this industry who might be affected by this legislation makes a minimum wage, but they make more than a minimum wage. MR. PERKINS responded that the tipped credit would be made to the employer. The employee ends up having to pay for this. Number 2165 REPRESENTATIVE SANDERS said he understood that the way this legislation was drafted would pre-empt any negotiations under collective bargaining. MR. PERKINS responded that the way he read the bill was that there was no provision for collective bargaining. Number 2205 MR. ROSENBERG noted that the most restrictive regulation requirement someone is under is the law that prevails, much like the minimum wage law is more restrictive or higher than the federal. They are obligated to maintain this. CHAIRMAN ROKEBERG added that his reading of the statute and the supremacy clause is that there is nothing in this particular bill which would have any impact on the right of a collective bargaining unit to bargain for whatever wage level they would like. Therefore, there is no need to speak to this by exempting collective bargaining here. This is not the committee's intent to restrict a collective bargaining unit and anyone related to labor relations from instituting their own wage scale. Number 2251 MR. PERKINS stated that this would be the base line figure. The alternative is if the collective bargaining agreements don't reflect this increase the employer certainly can decide to opt out and become a non-union employer at the end of the contract. CHAIRMAN ROKEBERG responded that this didn't restrict them from offering a higher wage scale, "as we heard from the testimony there are higher wage scales except that they do agree with that." Number 2274 REPRESENTATIVE RYAN made an analogy between common law and the Napoleonic Code. "We follow the basic standard of the English Common Law versus the Napoleonic Code. Under the Napoleonic Code, unless something is expressly permitted, it's forbidden. Under English Common Law, everything is permitted unless it's expressly forbidden. So, where in this legislation does it say anything about somebody couldn't collectively bargain? I don't see the argument there." CHAIRMAN ROKEBERG stated that this was his opinion as well. Number 2299 REPRESENTATIVE BRICE noted their discussions about the 40 cent increase and he asked where in the statute would it prohibit an employer from providing a cash wage of zero with a tipped credit of $5.25. MR. PERKINS responded that on page two, line two, subsection (d) this language could be found. Number 2335 REPRESENTATIVE BRICE realized this, but made himself more clear. "Say you're a tipped employee and you're bringing in ten dollars tips an hour as averaged out. What's to say that, what's to keep the employer from basically as they do in New Jersey, having a zero cash wage and then using the tipped credit for the entire wage." REPRESENTATIVE HUDSON responded that on the first page of the bill it clearly states that the employer shall pay each employee wages at a rate of not less than 50 cents an hour, greater than the prevailing minimum wage law which is established by federal law. Number 2371 REPRESENTATIVE BRICE noted that this was true, but with the exception of (b) and (d) prior to this clause. CHAIRMAN ROKEBERG clarified that on page two that the employer must pay a tip (indisc.) to the employee of at least 25 cents an hour. Number 2387 REPRESENTATIVE BRICE agreed and that's what he's trying to point out is that the tipped credit can be the $5.25. CHAIRMAN ROKEBERG said that this sets up a "floor." Number 2396 REPRESENTATIVE SANDERS asked if this amount of $5.25 an hour was the federal minimum wage. CHAIRMAN ROKEBERG responded that this was the current amount until September 1, when it will be raised again. This legislation would exclude this provisional raise from the Alaska statute. The federal minimum wage is $4.75 an hour and will go up to $5.15 in September. Alaska is above this amount. Number 2422 REPRESENTATIVE SANDERS asked that when this federal amount is raised to $7.50 would the Alaska amount stay at $5.25. MR. PERKINS responded, "yes." Number 2433 KYLE PARKER, Lobbyist, came forward to testify on HB 237. He noted that the way this legislation will work is that when in the future the minimum wage goes up to $7.00, the cash portion of the wage paid to a tipped employee by his employer will be $5.25, however, this does not relieve the tipped employee's employer from the obligation of making up whatever difference there might be between $5.25 and $7.00. If the employee is not earning enough in tips to make up this differential the employer will make up this differential on a daily basis. REPRESENTATIVE SANDERS added that an employee will never get a raise. If the employee is making $5.25 now and $2.00 in tips this employee is making $7.25. If the minimum wage goes to $7.50 then they're.... Number 2472 MR. PARKER added that Representative Sanders was absolutely correct. As the minimum wage goes up 40 cents an employee will not receive this from their employer, but as stated previously, the employer is not relieved from his obligation to ensure that the employee is earning at least $5.65 an hour when their state wage goes to $5.65 in September. TAPE 97-41, SIDE B Number 000 REPRESENTATIVE SANDERS stated for the record, that this legislation in the long run will "turn around and bite ya." Once an employer pays $7.00 an hour and the minimum wage is $7.50 or $9.00, when the employee is not making an amount above minimum wage as they are presently, they will not want to work in Alaska anymore. Number 035 MR. PARKER submitted that if in the future the minimum wage in Alaska does ever get to $7.00 an hour he imagined they would revisit this concept of a tipped credit. The other states which have enacted this legislation, as minimum wage increases, they've increased this amount. These states have looked at their tipped credits to determine whether they are still appropriate. MR. PERKINS offered that tips were never considered part of wages, this amount used to be over and above what the servers have earned. This is money they deserve to keep and the department feels this legislation is a departure from this concept. He thought it was offensive. Number 079 CHAIRMAN ROKEBERG asked Mr. Perkins about employers that have tipped employees and whether they are required to pay FICA on this wage and if so, what was he saying? MR. PERKINS responded that he was a former owner of a restaurant and he stated that it's very difficult to tell someone that their tips will be counted towards their wages, that basically they will be paying for this 40 cent increase. Number 110 TRINA JOHNSON, Owner, La Mex Restaurants, came forward to testify on HB 237. She stated that if this tipped credit did not pass she will seriously be forced to think about cancelling health benefits for her employees. Over the years they've had benefits for paid breaks, paid vacations, paid holidays, full health benefits, and meals provided at no charge. In the last six or seven years health benefits is the only thing that's left. She can't afford to take any more cuts. REPRESENTATIVE RYAN stated that he operates on the notion that the word tip is an acronym, "insure prompt service." He said that if he does not receive good service at a restaurant he didn't feel he was there to support the restaurant owners employees, he goes to restaurants to eat a good meal and to be served. If he's not served well, he doesn't feel obligated to leave a gratuity. He noted that if Alaska ever gets a minimum wage of $7.00 to $9.00 an hour, having been a student of history, he could say that they would be heading towards hyper-inflation and an economic collapse. He saw both sides to this issue, but felt if they didn't pass this bill it would mean that restaurant owners who are not making a lot of money will be that much poorer, because they'll be driven out of business. To raise $500,000 to $1 million in newly generated income is impossible in face of the federal government raising the minimum wage. Number 194 CHAIRMAN ROKEBERG noted that Ms. Johnson had provided the committee with a chart reflecting that her "back of the house" employees would have a flat level of compensation as the minimum goes up. This minimum wage increase has had a demonstrative, statistical impact on these employees. MS. JOHNSON offered that no employee in their restaurants are paid minimum wage, except tipped employees. Their dishwashers make in excess of $6.00 to $7.00 an hour. The cooks and line servers make up to $10.00 to $12.00 an hour. The only employees affected wage wise are the tipped employees. Inevitably, what will happen is, if they don't get a tipped credit the first phase of the minimum wage increase, her costs related to the minimum wage will increase costing last year in excess of $20,000. The next increase will cost her $25,000 to $30,000. In a two year period this is $55,000. There is too much competition out there and she noted that she could not sustain this increase. Number 259 CHAIRMAN ROKEBERG asked if she was able to increase profitability whether Ms. Johnson would allocate some of this money to the employees. MS. JOHNSON noted that they've been trying year after year. She suggested that a year from now they see where the benefits lie. She said she would love to reinstitute some of these benefits. The quality of the employee has to be high and keeping someone at $5.25 an hour is impossible. Number 302 REPRESENTATIVE COWDERY asked how many restaurants were in Anchorage. CHAIRMAN ROKEBERG ventured to say that there were over 300. REPRESENTATIVE COWDERY recollected that this number may be over 500. Number 338 REPRESENTATIVE RYAN referred to previous testimony by Mr. Gill regarding his union and how they cover most of the hotel employees. He wondered if these businesses were not as captive of audiences versus people who come into her establishment off the street. He asked how this worked. MS. JOHNSON stated that she wasn't sure, but said that if they looked at the difference between Mr. Anderson's place and the Westmark, the latter has been in business for a long time. Their start-up costs have been paid for. Presently, there are a lot of start up businesses, new businesses that are trying to open while the older businesses are trying to survive. She noted these variables were proof of a difference. Number 377 CHAIRMAN ROKEBERG ventured to say that the differentials are caused by the fact that the food amenity services in some hotels are there as an amenity to the guests. They try to be profit centers, but aren't necessarily because they have a lower volume of traffic and they have to pay a higher base wage because the employees don't receive the amount of tips from a classic restaurant situation. Number 414 REPRESENTATIVE HUDSON moved and asked unanimous consent to move HB 237 out of committee with individual recommendations and accompanying zero fiscal note. REPRESENTATIVE BRICE objected. He noted that he saw this legislation as a kick-back payment to the employers by the employees. He saw tips specifically as something that he gives as a customer to servers as versus the employer. He pays his bill to the owners. This legislation is inappropriate and it does not address the needs stated by the restaurant owners, given that they don't have minimum wage employees. What this does do, is hits down on the lower end folks rather than those in the higher, more classy establishments. Number 483 CHAIRMAN ROKEBERG requested a roll call vote. Representatives Cowdery, Sanders, Ryan, Hudson and Rokeberg voted yes. Representative Brice voted no. House Bill 237 passed from the House Labor and Commerce Committee. Number 523
| Document Name | Date/Time | Subjects |
|---|