Minimum Wage Plus Tips Is Gratuitous, Restaurants Say

With payments coming due for rent, grad school and her used Ford Focus, 24-year-old Stacy Matulis needs every nickel she earns waiting tables at Hugo’s restaurant in Studio City.

In addition to her salary of $6.75 an hour, Matulis picks up $140 or so in tips during a seven-hour shift -- about $20 an hour -- sharing some of that with busboys. Although the minimum wage still is modest, that is 165% higher than the hourly salary she made waiting tables in her hometown north of Chicago.

The reason: In Illinois and 42 other states, restaurants can pay table servers less than the federal minimum wage of $5.15 an hour if, with tips, their hourly income meets the federal threshold. California does not allow a “tip credit” reduction, and employers must pay all workers at least $6.75 an hour.

Which is why California “is better than Illinois,” said Matulis, who moved here in 2000. “There I only got $2.55 an hour.”

The tip credit ban rankles many restaurant owners in California, and they are once again out to do something about it. They say they need a tip credit to offset state-imposed costs, such as workers’ compensation, health insurance and a minimum wage significantly higher than the federal standard.

“This is a very, very sharp thorn in their side,” said Jot Condie, vice president of government affairs and public policy for the California Restaurant Assn., a trade group representing the $45-billion state industry. Restaurants are “looking for ways to cut costs. Every bit counts, given this current economic environment.”

The group hopes to persuade the state Legislature next year to freeze the pay or perhaps cut the minimum wage for waiters. To make its case, the association has commissioned a study of its 5,000 members to determine how much money in tips servers actually take in. The industry hopes the study, due out in November from the Sphere Institute in Burlingame, Calif., will show that some waiters are making out like bandits and restaurants deserve a break.

In January, the industry pleaded its case before the state’s Industrial Welfare Commission, only to be told that the matter must be settled by lawmakers, not regulators. “Personally, I think they make a good case,” said Bill Dombrowski, chairman of the commission.

Robert Spivak, president of Brentwood-based Grill Concepts Inc., which owns high-end eateries such as the Grill on the Alley in Beverly Hills, said he knew of servers who made $30 an hour in tips alone.

“A person who is making $30 an hour in tips should not be paid minimum wage,” said Spivak, whose company operates 22 restaurants in five states, two of which, California and Oregon, have no tip credit. About 40% of the company’s 1,500 employees are waiters.

At California Pizza Kitchen Inc., labor costs as a percentage of sales run about 2% higher in California and other states without the tip credit, said Greg Levin, chief financial officer. The company has 165 restaurants in 27 states.

“If a tip credit were to pass, you’d see a 2% reduction in labor costs” in California and other states where waiters are paid the minimum wage, Levin said. “It would increase our earnings, which would help increase the value of the stock.”

California restaurateurs lost the chance to pay reduced wages to waiters in 1988, when the state Supreme Court struck down an attempt to install a two-tiered wage system. The high court ruled that the system would violate a 1975 law barring employers from counting tips as wages.

The last time a tip credit bill was introduced in the state Legislature, in 1996, “it died a quick death,” Condie said. “It didn’t even get a hearing.”

Some restaurant owners contend that if they didn’t have to pay $6.75 to tipped employees, there would be more money in the pot to give raises to cooks and other nontipped employees. According to the state’s Department of Industrial Relations, some restaurants impose their own illegal tip credit: Last year, 31 restaurants were cited for failing to pay minimum wage to waiters and other workers.

But not all in the industry back the tip-credit campaign.

“I think minimum wage is not enough as it is,” said Matulis’ boss, Emily Kaplan, who owns two Hugo’s restaurants with her husband. “Even given the option, I wouldn’t dream of paying them less.”