Workers’ Tips at Issue in Minimum-Wage Bill

Just days before senators leave the Capitol for their summer recess, minimum-wage workers in California and a handful of other states have moved to the center of an intensifying election-year battle over tax cuts and wages.

Republican leaders, under pressure to enhance the party’s legislative resume ahead of the November elections, are scrambling to pass a controversial measure tying an increase in the federal minimum wage to a series of tax cuts. The legislation, already passed by the House, would raise the minimum wage from the current $5.15 an hour to $7.25 an hour by 2009.

But as Democrats muster opposition to a bill they say unfairly links the wage hike to a costly cut in the estate tax, they are focusing on one sentence in the 183-page bill that could mean pay cuts of $3 an hour or more for bartenders, food servers and others who rely on tips to supplement their wages.

“It’s a devastating proposal,” said Sen. Barbara Boxer of California, who was among a group of leading Democrats who have stepped up their campaign to scuttle the bill.

Two independent analyses of the bill released Wednesday also suggested that the provision could threaten the wages of thousands of tipped employees.

The provision was crafted by Republicans in response to complaints from restaurateurs, who said it was unfair to require them to pay the full minimum wage to employees who also receive tips.

In most states, minimum-wage employees who receive tips can be paid less than those who do not, if they make up the difference with gratuities. Under current federal law, the minimum wage for tipped employees is $2.13 an hour, compared with $5.15 an hour for non-tipped workers.

California and six other states do not have a lower minimum wage for workers who receive tips, however. Current California law sets the minimum wage for all workers at $6.75 an hour.

That would change if the bill currently before the Senate passes, according to Democratic critics and the new analyses.

They conclude that the bill would immediately wipe out the higher minimum-wage standards for tipped employees in states like California by superseding state laws with a new federal rule, which allows a lower wage for tipped employees even as it raises the minimum wage for everyone.

That would mean, for example, that a waitress at a Hollywood restaurant who currently makes $6.75 an hour plus tips could see her hourly wage plummet to $2.13 an hour plus tips.

In California alone, as many as 638,000 employees might be affected by the change, according to a Democratic analysis of the bill prepared for the Senate Committee on Labor, Health, Education and Pensions.

Other states that could be affected include Alaska, Minnesota, Montana, Nevada, Oregon and Washington, which also do not set a minimum wage for tipped employees.

Republican leaders and the National Restaurant Assn., which has been pushing for the provision, insist there will be no pay cuts for low-wage workers.

They say that the federal law will not change the minimum wage laws in states like California unless those states raise their wages further, at which point they would have to begin setting a lower rate for tipped employees.

“The purpose of this was not to reduce anyone’s wages,” said Peter Kilgore, general counsel for the National Restaurant Assn. “Nobody is going to lose anything they get.”

But the arcane provision of the hotly contested bill is already complicating Republican efforts to win a key legislative victory before the summer recess begins.

Democratic leaders in the Senate began attacking the tipped-employee provision of the bill almost as soon as they came to work Monday. They got a boost Wednesday when analysts in the nonpartisan Congressional Budget Office and the Congressional Research Service also concluded that the bill appeared to supersede state laws like California’s.

Now, many Democrats are rallying around the controversial provision in their effort to derail the bill. Senate Majority Leader Bill Frist (R-Tenn.) has said he wants a vote Friday on the measure, which he has called a “fair compromise” that gives tax relief to thousands while boosting wages for the poorest workers.