Minimum Wage Update

     The minimum wage measures that were reported out from the money committees before crossover  SB 2609 SD1 and HB 2580 HD1, were completely different proposals that came out of the subject matter committees as I wrote about them on February 21.  These bills, as modified by the Senate Committee on Ways and Means  and the House Committee on Finance, had no Consumer Price Index adjustments and tip credit was back on the table. 

    Only SB2609 SD1 survived the crossover early in March.

Poverty and minimum wage
    The House Labor and Public Employment Committee worked to use the poverty standards as a trigger threshold to allow tip credit.  Using a 250% variable of the poverty threshold, the trigger mechanism was to limit the ability of the employer to take the tip credit until workers earned that amount.  See SB2609 SD1 HD1.   In 2014, the 250% amount of Hawaii poverty guidelines is calculated out to $33,500, using the 2014 Hawaii poverty guidelines.

    In the Finance Committee hearing April 2, Representative Ward posed the question whether the enforcement  would use an accrual or cash basis.  A cash basis would mean tip credit could be taken after the worker earned $33,500.  Accrual basis would disperse the amount out over the year, i.e. $2,792 per month, or $644 per week; or $16 per hour, and the tip credit would be taken at that point.The HD2 version offered the answer to Representive Ward's question, the accrual basis.

Tip Credit

      "Tip credit" is a term used to indicate the amount of money an employer can subtract from the minimum wage to determine the cash wage required to be paid to regularly tipped employees.  For example, federal minimum wage is $7.25, with a minimum cash wage of $2.13, so the maximum tip credit under the Federal Labor Standards Act ("FLSA") is $5.12.  This means a restaurant employer can pay $2.13 per hour to a server and use $5.13 of the server's tips to make up the minimum wage.

     In Hawaii, the current tip credit is twenty-five cents that can be deducted from Hawaii's minimum wage of $7.25, or a minimum cash wage of $7.00 as long as the total earned in wages and tips is at least $7.75.   SB2609 HD2, provides for a tip credit increase to 75 cents by 2016 as long as the worker earns at least $15.50 per hour, and $17.00 per hour by 2018.   For tipped workers this works out to a cash wage of $7.75 in 2016, $9.25 in 2018. 


Recent Developments in Tip Credit

      Testimony from many employers in the restaurant industry indicate that the tip credit is essential to their survival and to the benefit of the lower paid un-tipped "back of the house" employees.  Representative Johanson asked these employers, "Why not share the tips with dishwashers, cooks, and managers too?"  The simple response is the U.S. Department of Labor has had a long-standing enforcement policy that wages belong to the employee and if there was an agreed upon pooling of tips, only those who were regularly tipped could partake in the sharing of tips, effectively eliminating those "back of the house" folks from receiving any of the tips.

     This is just part of the answer, since the Oregon Restaurant Association sued the USDOL Wage and Hour Division challenging  their exercise of authority in passing regulations that legitimized the USDOL tip pooling enforcement policy.  The court decision which came out in June 2013 and sided with the Oregon Restaurant Association says that if an employer does not take a tip credit, there is no authority for the USDOL to determine how an employer could contract with employees regarding the distribution of tips collected in the employer's establishment.  In essence, the court said if no tip credit was taken, tip pools could be shared by anyone. See Oregon Restaurant and Lodging, et al., v. Hilda L. Solis, et al., 948 F.Supp. 2nd 1217 (2013).

      The Oregon Restaurant Association wrinkle in the enforcement of tip pooling may create a new paradigm from the federal perspective for employers with regularly tipped employees.  From the Hawaii point of view, a tipped employee is still considered to be someone who receives  more than $20 a month in tips.  See Hawaii Administrative Rule 12-20-11.

What's next?

     The current minimum wage bill, SB 2609 is in Conference Committee with Senator Hee, Chair, Senator Ige Co-Chair; Senators Ihara, Kouchi, and Shimabukuro as conferee members along with Representatives Nakashima and Luke as Co-Chairs; and Representatives Ichiyama, Nishimoto, and Thielen as conferee members.  Conference hearings already held on April 17 and 21, have continued the matter with no resolution as of today.  The next conference meeting is on April 23, at 10:30 a.m. in Conference Room 325 at the State Capitol.