The hard working U.S. House of Representatives worked through the weekend to pass a bill to cut the minimum wage for tipped workers while eliminating the estate tax on large estates. The Estate Tax and Extension of Tax Relief Act of 2006, H.R. 5970, passed the House on July 29. It raises the minimum wage for most employees in states that do not have higher minimum wages under state law, from $5.15 per hour now, to $5.85 an hour, beginning on January 1, 2007, then $6.55 an hour beginning June 1, 2008 and peaking at $7.25 an hour beginning June 1, 2009.
However, in states with higher minimum wages that do not include tips in the calculation (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington), the bill means a pay cut for tipped workers, because the bill actually contains a provision that bars states from enforcing laws that require a higher minimum wage for tipped employees.
How? The federal minimum wage law currently allows employers to pay as little as $2.13 an hour, leaving tipped workers to rely on customer tips to make up the rest of the $5.15 per hour minimum wage. California requires employers to pay tipped employees the same $6.75 that everyone else gets, because it excludes tips from the minimum wage calculation. H.R. 5970 prohibits states that do so from enforcing any higher minimum wage standards with respect to tipped employees making more than $30 a month in tips. Such a law would be unprecedented. Congress has never before placed a ceiling, rather than a floor, on minimum wage rates. Here is the actual language from the bill:
1. SEC. 402. TIPPED WAGE FAIRNESS.
Section 3(m) of the Fair Labor Standards Act of 1938 (29 U.S.C. 203(m)) is amended—
(1) by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), respectively;
(2) by striking `Wage' paid to any employee' and inserting `(1) `Wage' paid to any employee';
(3) in subparagraph (B) (as so redesignated), by inserting before the period the following:
Provided, That the tips shall not be included as part of the wage paid to an employee to the extent that they are excluded therefrom under the terms of a bona fide collective bargaining agreement applicable to the particular employee'; and
(4) by adding at the end of the following:
(2) Notwithstanding any other provision of this Act, any State or political subdivision of a State which on or after the date of enactment of the Estate Tax and Extension of Tax Relief Act of 2006 excludes all of a tipped employee's tips from being considered as wages in determining if such tipped employee has been paid the applicable minimum wage rate, may not establish or enforce the minimum wage rate provisions of such law, ordinance, regulation, or order in such State or political subdivision thereof with respect to tipped employees unless such law, ordinance, regulation, or order is revised or amended to permit such employee to be paid a wage by the employee's employer in an amount not less than an amount equal to—
(A) the cash wage paid such employee which is required under such law, ordinance, regulation, or order on the date of enactment of the Estate Tax and Extension of Tax Relief Act of 2006; and
(B) an additional amount on account of tips received by such employee which amount is equal to the difference between the cash wage described in subparagraph (A) and the minimum wage rate in effect under such law, ordinance, regulation, or order, or the minimum wage rate in effect under section 6(a), whichever is higher.'
If this bill becomes law, California workers who earn tips will lose most of their non-tip compensation unless the legislature amends California law to include some portion of tips in its minimum wage calculations. If the legislature wants to maintain the status quo, it could avoid most of the impact of the act by including the first penny of a person's tips in the minimum wage calculations, as the act only affects a minimum wage statute that "excludes all of a tipped employee's tips from being considered as wages..." Of course, the generosity that the California Restaurant Association has shown to the current administration in California makes it unlikely that such an amendment would be signed by anyone other than Phil Angelides.