Minn. restaurant owners seek minimum wage break on tipped workers

Minnesota restaurateurs, sensing an opportunity with the new Republican House majority and fresh signs of sympathy from DFL Gov. Mark Dayton, plan to push for an exemption to last year's minimum wage increase that would allow them to pay a lower base wage to tipped employees.

"This last year has been a test for us," said Ed Fong, owner of David Fong's, a Bloomington Chinese restaurant his parents opened in 1958. "With the minimum wage increase, and big increases in food costs — those are my two biggest costs, and I seem to have less and less control of those items."

When the Legislature boosted the state minimum wage last year, a proposal to add the so-called "tipped employee tier" nearly became part of the package. The idea had bipartisan support, but failed by one vote in the DFL-controlled House. Then Dayton, who strongly backed the minimum wage law, said shortly after signing it that he saw the logic behind an exemption for restaurants.

"I'm willing to discuss anything, but I'm not looking to change the minimum wage," Dayton said in a recent interview with the Star Tribune. "I'm not going to open that door. If someone else wants to knock on it, they can put the proposal through the mail slot."

Last year's minimum wage hike was a huge victory for organized labor. The groups that pushed it are on high alert for proposals that would undermine it.

"It something we're obviously keeping a very close eye on," said Chris Shields, spokesman for the Minnesota AFL-CIO. "Given all we hear about stagnant wages, and that wages need to go up — we shouldn't be focused on capping them or cutting them, which is what a tip penalty would do."

Under the increase that Dayton signed last year, Minnesota's minimum wage rose to $8 an hour last August. This August it will rise to $9 an hour, and to $9.50 by 2016. Beginning in 2018, the wage will rise in yearly increments with inflation.

The Minnesota Restaurant Association's proposal would cap the minimum wage for tipped employees, primarily servers and bartenders, at $8 an hour. That would stay in place provided that, once tips are factored for each two-week period, those workers earned a total of at least $12 an hour. If they didn't, they'd get the full state minimum wage.

"It's not cutting anyone's pay. It's a Minnesota Nice approach," said Dan McElroy, vice president of the Minnesota Restaurant Association.

Every state that borders Minnesota has a dramatically lower sub-minimum wage carved out for tipped employees: $2.33 in Wisconsin, $4.35 in Iowa, $4.86 in North Dakota and $4.25 in South Dakota.

Several restaurant owners said the proposal would allow them to boost pay for kitchen staff and other untipped workers who don't earn tips.

"Our kitchen folks, our dishwasher and so forth, we pay them more than minimum wage. But our servers, with tips, are making upward of 18, 19, 20 dollars an hour," said Joan Schimbeno, who with her husband owns Chickadee Cottage Cafe in Lake City, Minn. "It would be a chance for us to even things out a little bit."

Would she and her husband add any of the savings to their own take-home? "We're not going to get rich on it," Schimbeno said, adding their typical profit after 17 years of owning the restaurant is 3 to 5 cents on every dollar.

"If we couldn't get this tip tier through, we'd have to start looking at hiring fewer people and raising our prices," Schimbeno said.

Fong said he'd probably have to raise prices, too. Larger bills would mean bigger tips for servers, he said, further exacerbating the pay discrepancies between tipped and non-tipped employees.

Lynda Durst has waited tables at David Fong's for 18 years. She currently earns the $8-an-hour minimum wage, and said her tip income is hard to predict. "It's not a steady income, but I wouldn't be at it this long if it wasn't conducive to my lifestyle," she said.

Durst said she's sympathetic to the difficulties of making a restaurant work financially. "Places close every day," she said. She said there can be tension between tipped and non-tipped workers: "It's a touchy subject."

According to 2012 figures from the Bureau of Labor Statistics, the median wage for servers in Minnesota including tips is $8.68 an hour. Minnesota has an estimated 48,000 servers in the workforce, many of whom do not receive health insurance or other benefits.

Republican lawmakers see a problem for a business model that exists in every single legislative district.

"Despite the fact that the economy is getting better, we're seeing an unusual number of bars and restaurants close," said Rep. Pat Garofalo, R-Farmington, noting recent high-profile examples like Nye's Polonaise Room and Pracna. Still, there's evidence that cuts against this claim: Last November, after the minimum wage increase, Minnesota restaurants and hotels added 5,000 jobs on a seasonally adjusted basis. It was that sector's biggest monthly gain on record.

"Customers coming into the restaurant is what determines whether you're successful," said Rep. Ryan Winkler, DFL-Golden Valley. "Concepts come and go."

A possible House sponsor of a tip tier bill, Garofalo said he wants to see more Democrats speak up in favor of the proposal before he introduces anything.

But it's a politically prickly issue for the DFL, caught between labor allies on one hand and restaurant owners in their districts on the other. A few Democratic lawmakers openly support the measure.

"I'm very much in favor," said Sen. Terri Bonoff, DFL-Minnetonka. "Have you noticed that more and more new restaurants are counter service? We're just trying to help full-service restaurants survive."

Last year, Rep. Jason Isaacson, DFL-Shoreview, said on the House floor that he would champion a tipped employee tier proposal this year. He has since changed his mind.

"I got yelled at. I was taken to task by a few folks," Isaacson said. "Some of my friends in labor were disappointed in my statements about that."

While Dayton has said he doesn't think it's a good idea to revisit the minimum wage law, he has also identified a personal connection to the issue. His two sons own a full-service restaurant in Minneapolis, Bachelor Farmer.

Last year, soon after signing the minimum wage increase, Dayton told the editorial board of the Post-Bulletin in Rochester that the law might have to be "fine tuned," citing his sons' input. The next day, he backed off that statement.