Rethinking the “Tip Credit”: Index It to the State Minimum Wage for Tipped Employees

I know I promised that yesterday’s post on a “Tip Adjusted Benefit Deduction” would be my last creative stab at proposing a minimum wage compromise that benefits both sides, but I’ve got one more wonky little provision that should be a part of any debate over a so-called “tip credit”: the size of the credit should be indexed to a fixed percentage of the effective state minimum wage for tipped employees, not Seattle’s minimum wage.

Here’s how it would work: Let’s say Seattle set it’s minimum wage to $15 an hour, indexed to inflation, with a maximum allowable “tip credit” set to 50 percent of the effective state minimum wage for tipped employees, currently $9.32 an hour (also indexed to inflation). That would make Seattle’s tip credit $4.66 an hour. Simple.

But because Seattle’s tip credit is indexed to the state minimum wage, it creates within Seattle’s powerful restaurant industry a very strong incentive to politically oppose any effort to establish a tip credit within state minimum wage law. For example, let’s say a bill were proposed in the state legislature to establish a minimum wage for tipped employees set at 50 percent of the state minimum wage. This would effectively halve the allowable tip credit in Seattle to only $2.33 an hour! I’d love to see the Washington Restaurant Association try to maintain unity over that.

It is essentially a poison pill provision aimed at addressing labor’s very legitimate concern that passing a tip credit here in progressive Seattle could set a political precedent that enables the imposition of a tip credit statewide, thus lowering the incomes of tens of thousands of tipped workers outside city lines.

Don’t get me wrong: I oppose a tip credit. I find the arguments in favor less convincing than the arguments opposed. But if we’re debating whether to impose a tip credit we should also be debating the nature of the tip credit itself. I have now proposed a number of variations that could make a Seattle tip credit a helluva lot less worse than the restaurant industry giveaway imposed at the federal level. For example, a tip credit indexed to the state minimum wage for tipped employees as described above, combined with a substantial monthly threshold and exemption, and conditional on meeting strict business and account practices designed to impede wage and tip theft, would have a very different impact than the out-of-the-box tip credit the restaurant industry is demanding.

Both sides would be asked to give a little. Both sides would get a little something in return. That is the essence of political compromise.

Trust me, these series of posts on potential compromises aren’t going over well with my friends at 15 Now, while the folks on the business side of the table continue to pretend that I ceased to exist the second I left the pages of The Stranger. But I know that city council members are still reading me, and they are the ones who will ultimately craft a minimum wage ordinance, not the arbitrarily appointed members of Mayor Ed Murray’s Income Inequality Advisory committee.

If the business community can have the gall to attempt to redefine such a common word as “wage” through their bullshit “total compensation” proposal, then it is certainly reasonable to redefine such a vague and inaccurate term as “tip credit” (which is, in fact, a “tip deduction“) in the service of promoting better economic incentives. Instead of simply opposing or supporting a tip credit, we should take this debate as an opportunity to rethink it.

My sincere advice to both sides as they head into the nitty gritty of final negotiations is to think creatively before digging into an intractable position that triggers a risky winner-take-all confrontation at the ballot box. A modified tip credit that serves to impede wage and tip theft while removing existing economic incentives to push employees into part-time non-benefit work, could actually prove a win-win for businesses and workers alike.

Or maybe not. But it’s worth exploring.