- - Monday, October 7, 2019

South Bend’s “Mayor PeteButtigieg spent the summer bolstering his progressive bona fides, releasing a set of labor law “reforms” he claims would boost paychecks and double union membership. But the mayor’s highest-profile policy proposal — a severe change in the payment system for tipped employees — has drawn opposition from the very people he claims to help.

Mayor Pete’s website describes his plan to raise the federal minimum wage to $15 an hour, effectively doubling current law (which also prevails in Indiana). He also supports elimination of the separate lower base wage for tipped employees, which would effectively raise this wage floor more than 600 percent. Could you handle a rent or mortgage increase of 600 percent? Can you think of any labor-intensive industry that could absorb that hit to their balance sheet?   

Mayor Pete doesn’t mince words, calling it “indefensible” that any employee is “exempted from minimum wage laws.” What’s truly indefensible is his poor understanding of the tipped-wage system, which provides above-minimum wage pay for millions of servers and bartenders.


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No tipped employee is exempt from coverage of federal minimum wage laws. However, federal law and most states recognize the unique aspect of earning considerable tip income on the job. That income is treated as wages and taxed by the IRS just like any other earned wages. The law permits employers to count some of this tip income toward employers’ wage requirements. In the rare case where tipped employees don’t earn at least the minimum wage between their tips and their base wage, employers are legally required to make up the difference. It’s not significantly different than commission-based sales programs in other industries.

While technically so classified, tipped employees are not minimum wage employees; indeed, Census Bureau data suggests most of them are earning two or three times the federal minimum wage when their tip income is accounted for.



As a resident of the region, the mayor should know that South Bend isn’t San Francisco, and Mishawaka isn’t Manhattan; there’s only so much consumers will pay for a burger and a beer. To offset a cost increase of this magnitude, restaurants are experimenting with their business model. Many are already starting to make use of tabletop computer ordering and payment devices to cut down on servers. If the tipped minimum wage was increased by more than 600 percent, more will transition toward more self-service in ordering and paying the check.

In high-cost of living San Francisco, which has embraced Mayor Pete’s model of a $15 minimum wage without counting tip offsets, restaurants are struggling to keep their doors open. (One food industry publication called it a “death march.”) In a recent meeting with the City Council, restaurateurs warned that the city was becoming a “non-viable market;” where restaurant closures reportedly outpace openings by 9 percent. A Harvard study of Bay Area restaurants found a 10 percent spike in closures for 3.5-star restaurants following each one-dollar change in the base wage. New York City is experiencing the same documented destruction of good jobs.

Mayor Buttigieg isn’t the only one who gets this wrong. Most of his challengers for the 2020 Democratic presidential nomination support some version of this proposal. In Florida, the law firm of personal injury attorney John Morgan is financing a 2020 ballot measure that would have largely the same effect. (Mr. Morgan has come under criticism for his firm’s call center where many employees allegedly make less than Florida’s current minimum wage.)

The dramatic increase in labor costs that Mayor Pete proposes has already been tried in some states. Because big menu price increases aren’t feasible, there is now more self-service, more automation and fewer employees.

Recently in New York state, New Mexico, Michigan, Maine and Washington, D.C., thousands of tipped employees have demonstrated against proposals that would eliminate the current tipped system. And it’s not just high-end steak house employees who are opposed. Servers from Denny’s to Outback have protested the proposed change.

These employees are not stupid. If they felt they were getting screwed they know McDonald’s is always hiring at levels above the minimum wage. But they’re in the full-service restaurant industry because they make far more in tips than if they earned a $15 or $20 hourly rate. While their employer is making a 5 percent profit on a dollar of sales, they’re making 15 percent to 20 percent in tipped commissions on the same dollar. Seems that they understand business pressures and the bottom line better than Mayor Pete.

• Richard Berman is the president of Berman and Co., a public relations firm in Washington, D.C.

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