MONEY

Minimum wage hike may hinge on tipped workers

Kevin Hardy
kmhardy@dmreg.com

Des Moines-area restaurant owners are taking a hard line on a Polk County proposal to raise the minimum wage to $8.75 an hour — saying they will aggressively oppose a higher wage if it includes tipped workers.

The volatile sticking point is the latest potential roadblock in Polk County's effort to raise the minimum wage above the state and federal minimum of $7.25 an hour.

And it points out a huge divide between labor advocates who say all workers must share in a minimum pay increase and business owners who say tipped workers are already making significantly higher wages.

"Tipped employees are not in the same situation as hourly employees," said Paul Rottenberg, president of Orchestrate Hospitality, which operates several metro hotels and restaurants, including Centro and Zombie Burger. "Tipped employees make significantly more than the hourly minimum wage. And they get raises every time restaurant prices increase."

Server Wendy Becvar works the lunch crowd at Jethro's BBQ n' Pork Chop Grill in Johnston Tuesday July 12, 2016. By working a tipped job, she says she makes more per hour than her previous hourly work as a CNA.

On Thursday, a county task force recommended raising the local minimum wage beginning Jan. 1, 2017, and instituting a series of annual wage bumps if the Legislature fails to pass a statewide increase during the next legislative session. State law says tipped workers must earn at least 60 percent of the overall minimum wage, which right now pays them $4.35 an hour.

Under the task force proposal, tipped workers would have to be paid at least $5.25 an hour, plus future increases as the minimum wage rises.

Iowa Restaurant Association President and CEO Jessica Dunker says restaurateurs could live with a new minimum wage in Polk County as high as $12 — so long as pay for tipped servers and bartenders remained frozen at $4.35 per hour.

Jessica Dunker is the president of the Iowa Restaurant Association shown here at her office Tuesday July 12, 2016, in West Des Moines

Dunker, who sits on the minimum wage task force, says the group's current proposal will do nothing to raise wages for behind-the-scenes staff such as cooks and dishwashers.

"They’ve done very little, actually nothing at $8.75, to help the lowest-paid workers in our industry," she said. "Instead, they’ve mandated an increase to the highest-paid employees in our industry."

Restaurant operators say their servers and bartenders are among their highest-paid employees: an informal restaurant association survey puts the average pay, including tips, at nearly $20 per hour.

But Polk County officials are worried that changing the current structure of the tipped wage could raise the threat of a legal challenge to a new minimum wage in Iowa's largest county.

Labor advocates argue that not all service jobs pay as well as the restaurant association says.

Many tipped workers only work part time. Schedules and earnings can be erratic. And those at lower-end restaurants such as diners can struggle to earn much above minimum wage as they cobble together their meager tips.

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Task force members said Thursday they also want to protect servers at all types of restaurants, including those at chain and lower-end restaurants where pay is less.

"To be frank, the Perkins of the world, The Village Inns of the world," said Anne Bacon, executive director of Impact Community Action Partnership. "These are still staff we want to make sure are covered."

Emily Schott, an organizer with Iowa Citizens for Community Improvement, argues that a local minimum wage hike should target all workers.

"It's a tricky argument to say some folks need it more than others," she said. "People at the front of the house need it, people at the back of the house need it."

Server Wendy Becvar works the lunch crowd at Jethro's BBQ n' Pork Chop Grill in Johnston. Jethro's has opened a location in Ames called Jethro's BBQ Steak n' Chop.

Tipped workers and the minimum wage

While Iowa law requires employers to pay tipped workers 60 percent of the minimum wage, it also says that the tips they earn must increase their hourly wage to at least the minimum of $7.25 an hour. If not, the employer must make up the difference.

Unless Polk County excludes tipped workers, that dynamic would continue with future minimum wage hikes.

According to the Bureau of Labor Statistics, the median wage across Iowa is $8.70 for waiters and waitresses and $8.66 for bartenders.

Several servers and bartenders interviewed by The Des Moines Register said they often earn more than twice those wage rates.

Wendy Becvar said she can pull in as much as $200 waiting tables or tending bar during a busy shift at Jethro's BBQ n' Pork Chop Grill in Johnston. Generally, she averages about $20 an hour.

That wage allows her to earn more money —  and work fewer hours — than she did at her previous job as a certified nursing assistant at a local hospital.

Flexible schedules allow her to choose the days and times she works. And the job allows her to run home to tend to her children in case of an illness or emergency.

"If I'm more on my game and give better service, I get more money," said Becvar, 30. "And I definitely like that control."

That's why she isn't too interested in seeing the minimum wage for tipped workers increase.

"I feel like it's fine where it's at," she said. "If people know we’re making $10 an hour, they won’t tip," she said.

Costs will add up for restaurants

In his office above Splash Seafood Bar & Grill in downtown Des Moines, Mike Holms has crunched the numbers. His spreadsheets project just how much a minimum wage hike would cost Splash and the six metro Jethro's locations he works with as the company's marketing director.

The company's barbecue restaurants employ about 400 tipped employees. In 2015, servers and bartenders averaged $19.55 per hour in tips, he said.

With the $4.35 an hour the law says the company must pay, their average hourly pay rises to nearly $24.

Their cooks make an average of about $14 per hour, Holms said. So even with a minimum wage hike, it's unlikely the company would see its labor costs increase for those workers.

But it would be a different story for servers and bartenders if tipped workers' income remains tied to a higher minimum wage, Holms said.

Server Wendy Becvar works the lunch crowd at Jethro's BBQ n' Pork Chop Grill in Johnston Tuesday July 12, 2016. By working a tipped job, she says she makes more per hour than her previous hourly work as a CNA.

According his calculations, the company's $692,000 in labor costs for servers last year would have jumped to more than $830,000 under the proposed Polk County minimum wage of $8.75 an hour and a correspondingly higher minimum wage for tipped workers of $5.25 per hour.

If that minimum wage was $12 (making the tipped-minimum $7.20), the restaurants' costs for servers would have climbed an additional $450,000 in 2015.

And if the minimum wage was $15 (with a $9 tipped minimum), the labor costs for servers would have more than doubled, to more than $1.4 million.

That bottom line, Holms said, makes an increase in the tipped wage a "deal breaker."

"It only affects our highest-paid employees," he said.

An Iowa Restaurant Association survey of 55 full-service restaurants in Polk County projected additional costs of $1.6 million with an $8.75 minimum wage.

Restaurants could raise prices to offset some of those added costs, not all of them.

"Nobody's paying $15 for a pulled pork sandwich," Holms said. "Everybody's got that limit."

Instead, Jethro's restaurants may be forced to replace their full-service model with counter service, allowing patrons to order at a register and fill their own drinks.

Or, Jethro's could go the way of popular chain restaurants and install tabletop tablets, allowing diners to order from a machine.

The company certainly will be forced to make changes if the tipped minimum wage increases, Holms said.

"We will look outside of Polk County to open restaurants," he said.

Server Wendy Becvar works the lunch crowd at Jethro's BBQ n' Pork Chop Grill in Johnston Tuesday July 12, 2016. By working a tipped job, she says she makes more per hour than her previous hourly work as a CNA.

Is it legal?

Complicating the issue further are skeptics who question whether Iowa's minimum wage law allows Polk County to legally freeze the minimum wage for tipped workers.

Paul Iversen, a labor educator at the University of Iowa, believes counties and cities have the authority to change the minimum wage amount, but not the 60-40 split between the employer share and tips.

Server Wendy Becvar works the lunch crowd Jethro's BBQ n' Pork Chop Grill in Johnston Tuesday July 12, 2016. By working a tipped job, she says she makes more per hour than her previous hourly work as a CNA.

"That basic structure of the minimum wage remains the same," Iversen said.

Polk County Supervisor Tom Hockensmith wants the tipped wage to stay tied with the new minimum, in part to fend off a legal challenge. Representatives from the Polk County Attorney's office reported that freezing the tipped wage could increase the likelihood of a lawsuit.

But Dunker, of the Iowa Restaurant Association, said there's plenty of people who question whether counties have the authority to set their own minimum wage increases.

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The association has asked for a second legal opinion on the issue.

When Johnson County debated becoming Iowa's first county to approve a local minimum wage hike, many of those same legal questions arose. The county is in the second step of phasing in a $10.10 minimum wage, which, so far, hasn't been challenged in court.

In that county, restaurants will be required to pay tipped workers $6.06 per hour when the new wage is fully implemented in January (and ensure all workers are earning enough tips to make at least $10.10 an hour).

Iversen, who formerly worked as a labor attorney in Minnesota, said he believes keeping the tipped wage tied to the minimum wage will better stave off legal challenges.

He said some waitstaff may earn a decent living, but many are "not making huge amounts of money." Plus, waiting tables or tending bar is not an easy job.

"If somebody touches my butt, or hugs me or grabs me, I gotta put up with it," he said. "Because I'm paid by them."

Server Wendy Becvar works the lunch crowd at Jethro's BBQ n' Pork Chop Grill in Johnston Tuesday July 12, 2016. By working a tipped job, she says she makes more per hour than her previous hourly work as a CNA.

What do servers and bartenders really make?

The Bureau of Labor Statistics reports that tipped workers in Iowa are among the nation's lowest-paid.

The average annual wage for a waiter or waitress is calculated at slightly more than $19,000 in Iowa, compared with the national average topping $23,000 per year, the BLS reports.

Iowa State University economist Dave Swenson notes that those annual figures may be low, since they assume that waitstaff work 40 hours per week, 52 weeks a year.

Still, Jessica Dunker, president of the Iowa Restaurant Association, doubts the veracity of the federal data. The trade group's informal survey of about 55 full-service restaurants in Polk County found that tipped workers earn an average $19.36 per hour. 

The survey represented about 1,200 tipped workers across the county. Mostly independent restaurants responded, leaving out data from diners and casual chain restaurants.