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In $15 an hour debate, 100 restaurants spell out the case for a 'tip credit'

Pathway to 15 says not including a 'tip credit' in the city's new minimum wage would be a devastating blow to the restaurant industry.
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A significant number of Minneapolis bars and restaurants believe including a "tip credit" is crucial if the city implements a new minimum wage.

The eateries are backing a campaign called "Pathway to 15," which presents an alternative to a blanket $15-an-hour minimum wage being considered by the Minneapolis City Council. Notable spots such as Manny's Steakhouse, Piccolo, Libertine, Revival, Pizza Luce and Psycho Suzi's are on the list, which you can see here.

Mayor Betsy Hodges made the case against a tip credit (which she calls a "tip penalty") being included in a new minimum wage law, but Pathway to 15 says not having it would be a devastating blow to the city's restaurant industry.

"Small businesses in Minneapolis are struggling to operate on a very thin profit margin," Sarah Norton, a Minneapolis server who leads Service Industry Staff for Change, said in a press release. "A policy that accounts for tips means we can protect our jobs and our employers."

What are they suggesting?

Pathway to 15 actually approves of a $15 minimum wage, just not the way it's generally been suggested.

The premise of what they want is simple, even if the language sounds complicated: Recognize the total taxable income for tipped employees in Minneapolis.

What this means is they want the city to take into account the amount of tips a server/bartender gets, plus their base hourly wage, when calculating total income – this is the "tip credit."

Minnesota is one of the states where tips are not taken into account when calculating someone's income. So servers – even if they get tips – must be paid the state minimum wage of $7.75 (for small businesses) and $9.50 (for large ones). This is well above the $2.13 an hour federal minimum wage that can be paid to tipped workers.

If Minneapolis as a city gets a higher minimum wage than the state, Pathway to 15 says restaurants should only have to pay the difference if an employee's base wage plus tips comes in below the new minimum (rather than forcing restaurants to pay servers the full new minimum wage).

Here's an example based on a $15 an hour minimum wage:

If a server earns a $7.75 base wage and makes $5 an hour in tips, that's $12.75 an hour total. The restaurant would be responsible for paying the additional $2.25 an hour to bring them up to $15 an hour.

Pathway to 15 is also calling for any increase to $15 an hour to be phased in over a period of years, giving businesses a chance to adjust. The minimum wage would reach $15 an hour by 2024 for small businesses, and by 2020 for large businesses.

The arguments for and against

The main fear among restaurateurs is the added costs of paying a much higher base wage.

This would increase their costs, cut their profit margins and likely force menu prices up. Even though customers wouldn't have to tip anymore, increased menu prices could dissuade people from dining out, potentially putting jobs and businesses at risk.

"Recognizing the total taxable income of restaurant workers will allow locally-owned restaurants and bars to continue full table service without disruptive changes to the service model or personnel," Be'Wiched Deli owner Michael Ryan said in the press release. "This approach will help restaurants continue to thrive and empower restaurant workers in Minneapolis.”

Pathway to 15 also says that a $15 minimum could actually be a pay cut for some restaurant workers in the city, who right now earn well in excess of $15 an hour when tips are included. The organization cites a Minnesota Restaurant Association survey claiming statewide servers' incomes averages $18 an hour, while the figure is $22 an hour in the Twin Cities metro.

This figure has been disputed by Mayor Hodges, who cited Bureau of Labor figures that said in 2015, the average income of servers in Minnesota was $10.11.

The Pioneer Press also reported in 2015 that around 47 percent of Minnesota’s minimum wage earners work in the state’s restaurants and bars – more than any other single industry.

Another argument against the tip credit is that it has the potential to penalize women, who make up two-thirds of tipped workers and are more likely to suffer sexual harassment while doing their job.

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