Agenda Item 8A
June 23,2015
Action
MEMORANDUM
June 19,2015
TO:
County Council
FROM:
Robert H. Drummer, Senior Legislative
Attome~
Minimum Wage - Tipped
SUBJECT:
Action:
Expedited Bill 24-15, Human Rights
Employee - Amendments
Health and Human Services Committee recommendation (3-0): enact the Bill with an
amendment.
Expedited Bill 24-15, Human Rights
Minimum Wage - Tipped Employee
Amendments, sponsored by Lead Sponsors Councilmembers Berliner, Katz, Council Vice
President Floreen, and Councilmember Rice was introduced on May 21,2015. A public hearing
was held on June 9 and a Health and Human Services Committee worksession was held on June
16.
Bill 24-15 would:
(1)
modifY the amount of the tip credit an employer can use to calculate the minimum
wage for a tipped employee working in the County;
(2)
require an employer of a tipped employee to submit quarterly wage reports;
require the Executive to establish an online reporting system for quarterly wage
(3)
reports; and
generally amend the law governing the minimum wage for a tipped employee working
(4)
in the County.
Background
In November 2013, the County enacted Bill 27-13, Human Rights and Civil Liberties ­
County Minimum Wage Dollar Amount, establishing the County minimum wage with phased
increases on October 1 of each year through 2017. Earlier this year the Council modified some of
the effective dates for the phased increases by enacting Bill 59-14, Human Rights and Civil
Liberties County Minimum Wage - Effective Dates.
A tipped employee under Bill 27-13 must be paid the County minimum wage, but the
employer may subtract from the hourly wage paid a tip credit. The maximum tip credit is the
County minimum wage less 50% of the State minimum wage. For example, the County minimum
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wage is $8.40 per hour. The State minimum wage is currently $8.00 per hour. Therefore, the
maximum tip credit is $8.40 less $4.00 (50% of $8.00) or $4.40. Therefore, an employer must pay
a tipped employee working in the County a base pay of $4.00 per hour. If the employee does not
earn enough in tips to cover the tip credit, the employer must make up the difference. However,
the maximum tip credit will change as the County minimum wage and the State minimum wage
change over time. A chart showing the different wage rates and the tip credit over time is at ©5.
The County minimum wage less the tip credit (the County base pay for a tipped employee) is
always 50% of the State minimum wage, but it would change over time as the State minimum
wage rises. However, the State minimum wage less the State tip credit (the State base pay for a
tipped employee) remains at the current $3.63 per hour. Bill 24-15 would keep the County base
pay for a tipped employee at its current $4.00 per hour as the State minimum wage rises. An
employer would still have to ensure that a tipped employee working in the County receives enough
tips to cover the tip credit.
The Bill would also require the Executive
to
establish an online reporting system and an
employer would have to file a quarterly report certifying that each tipped employee received the
minimum wage through the base pay plus tips.
Public Hearing
Shelley Moskowitz, representing Jews United for Justice (©6) opposed the Bill because it
would freeze the base pay for tipped employees. Ashlie Bagwell, Harris Jones
&
Malone,
representing a coalition of County Restaurants, Dan Simons, owner of Founding Farmers
Restaurants,
Lynn
Martins, Seibel's Restaurant, and Omar Martinez, Silver Diner Restaurant each
supported the Bill. The restaurant representatives argued that forcing a restaurant to increase the
base pay for their servers, who earn significantly more than the County minimum wage in tips,
would give them less money to pay their non-tipped employees working in the kitchen. We also
received similar written testimony from the Restaurant Association of Maryland (©7-9) and
Clyde's Restaurant Group (©ID-l1).
HHS Worksession
The
Committee reviewed the
Bill
and discussed the reporting requirement. The Committee
amended the Bill to clarify that the online system that the Executive must establish for employers
to report would be an optional method of complying. With this amendment, the Committee (3-0)
recommended approval ofthe BilL
Issues
1.
What is the fiscal and economic impact of the Bill?
OMB estimated that there are 35,592 tipped employees working in the County. See ©14.
Based upon this estimate, OMB estimated that the Office of Human Rights would need to add 2
Investigator II positions at an annual recurring cost of $270,000 to review, verify, or investigate
each employer report. However, the Bill does not require the Office of Human Rights to step up
enforcement of the application of the minimum wage to tipped employees.
In
fact, the Office
2
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currently has only 4 investigators to cover enforcement of all of the various discrimination laws
and other laws recently added by the Council. To increase the enforcement staff by 50% just to
review reports on tipped employees is inefficient and unnecessary. OMB also estimated that the
online reporting system would have a one-time cost of $1 00,000 to develop and implement and a
recurring $10,000 cost to maintain.
Finance was unable to find reliable information about employment, wages, and income for
the restaurant industry in Montgomery County. Looking at national data, Finance concluded that
the Bill would not have a negative impact on employment and could have a positive impact on
wages for non-tipped employees who work with tipped employees.
2. Should the base pay for tipped employees be set at $4.00 per hour?
Tipped employees must be paid the County minimum wage for all hours worked in the
County. If the sum of the base pay plus the tips received does not equal the County minimum
wage, the employer must pay the employee the difference. The current base pay for tipped
employees will keep rising as the State minimum wage rises. See the chart at (©5). The restaurant
industry representatives argued that tipped employees in their restaurants already earn more than
the minimum wage in tips alone. For example, the general manager for Seibel's Restaurant in
Burtonsville, Lynn Martins, testified that the servers in her restaurant average $22 per hour in tips.
Therefore, raising the base pay for a server working at Seibel's would increase the pay for a server
and reduce the amount of revenue available for the restaurant to pay non-tipped employees
working in the kitchen. In addition, the rising base pay for tipped employees is complicated for
businesses to keep up with and difficult to enforce. Committee recommendation (3-0): approve
the provision setting base pay for tipped employees at $4.00 per hour.
3. Should the Bill require quarterly payroll reports?
The Bill would require each employer in the County
to
send a quarterly payroll report to
the Director of the Office of Human Rights within 30 days after the end ofthe quarter. The report
must include a certification from the employer that each tipped employee was paid the County
minimum wage. The Bill would also require the Executive to establish an internet based reporting
system for an employer of a tipped employee to complete these reports. The Committee discussed
whether the online reporting system that the Executive must establish would be the exclusive
method of complying. The Committee decided that it should not be the only way to comply and
amended the Bill to clarify that issue. See lines 28-31 at ©3.
By law, the Maryland Department of Labor Licensing and Regulation (DLLR) has
authority to investigate complaints about the County's minimum wage law and take action to
enforce it. The County Office of Human Rights has concurrent authority to do so, but due to
staffing limitations, routinely refers complaints to DLLR. However, according to Jenny Baker,
Assistant Attorney General and counsel for the DLLR, the State would not accept a request to
investigate an employer from the County resulting from a review of a payroll report required by
Bill 24-15. (See ©12) DLLR only accepts complaints from an employee. Therefore, if a review
ofthe payroll record indicates a violation, the County would have
to
either investigate the employer
itself or ask an affected employee to file a complaint with the State directly.
3
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None of the restaurant representatives objected to the proposed quarterly payroll reporting
requirement. Although, it may not lead to greater enforcement by the State, it could encourage
employers to comply with the law. Committee
recommendation
(3-0): approve the new
reporting requirement
This packet contains:
Expedited Bill 24-15
Legislative Request Report
Chart showing tipped employee wages
Testimony
Jews United for Justice
Restaurant Association of Maryland
Clyde'S Restaurant Group
Email from Jenny Baker
Fiscal and Economic Impact Statement
F:\LAW\BILLS\I 524 Minimum Wage - Tipped Employee - Amendments\Action Memo.Docx
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4
5
6
7
10
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Expedited Bill No. =.24-1....,,5'--_--:-:-::-:--_
.....
Concerning: Human Rights - Minimum
Wage -
Tipped Employee ­
Amendments
Revised: June 16.2015 Draft No.
~
Introduced:
May 21.2015
Expires:
November 21. 2016
Enacted: _ _ _ _ _ _ _ _ _ __
Executive: _________- _
Effectwe: __________________
Sunset Date:
-'Ni..!:!o~n~e
___________
Ch. _ _, Laws of Mont. Co. _ ___
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
Lead Sponsors: Councilmembers Berliner, Katz, Council Vice President Floreen, and
Councilmember Rice
AN EXPEDITED ACT
to:
(l)
(2)
(3)
(4)
modifY the amount of the tip credit an employer can use to calculate the minimum
wage for a tipped employee working
in
the County:
require an employer of a tipped employee to submit quarterly wage reports;
require the Executive to establish an online reporting system for quarterly wage
reports; and
generally amend the law governing the minimum wage for a tipped employee
working
in
the County.
By amending
Montgomery County Code
Chapter 27, Human Rights and Civil Liberties
Section 27-69
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law
by
original bill.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unqffected by bill.
The County Council for Montgomery County, Maryland approves thefollowing Act:
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ExPEDITED BILL
No. 24-15
1
Sec.t. Section 27-69 is amended as follows:
27-69.
(a)
Tipped Employees.
2
3
4
Definition.
As used in this Section,
tipped employee
means:
(l)
an employee who:
(A)
5
6
is engaged in an occupation in which the employee
customarily and regularly receives more than $30 each
month in tips;
7
8
9
10
11
12
(B)
has been informed by the employer about the provisions of
this Section; and
(C)
(2)
has kept all ofthe tips that the employee received.
Notwithstanding paragraph (l )(C), this Section does not prohibit
the pooling oftips.
13
14
15
16
(b)
Computation of wage.
Except as provided in subsection (c), an
employer may include, as part of the wage of a tipped employee:
(l)
an amount that the employer sets to represent the tips of the
employee; or
(2)
if the employee or representative of the employee satisfies the
Director that the employee received a lesser amount in tips, the
lesser amount.
17
18
19
20
(c)
Limit.
The tip credit amount that the employer may include under
subsection (b) must not exceed the County minimum wage less [50% of
the minimum wage required for that employee under the State Act]
$4.00 per hour.
21
22
23
24
25
26
@
Reports.
An
employer who employs
~
tipped employee in the County
must submit
~
quarterly wage report within 30 days after the end of each
quarter to the Director certifying that each tipped employee was paid the
minimum wage required
by
this Section.
@t:\law\bi!lS\1524 minimum wage - tipped employee - amendments\bill3.docx
27
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EXPEDITED BILL
No.
24-15
28
29
W
Online reporting system.
The Executive must establish an internet
based reporting system
as
an optional method for an employer of
!!
tipped employee to submit the quarterly wage report required
Qy
subsection
@1
30
31
32
Sec. 2.
Expedited Effective Date.
33
34
The Council declares that this legislation is necessary for the immediate
protection ofthe public interest. This Act takes effect on July 1,2015.
Approved:
35
36
George Leventhal, President, County Council
Date
37
38
Approved:
Isiah Leggett, County Executive
Date
39
40
This is a correct copy ofCouncil action.
Linda M. Lauer, Clerk ofthe Council
Date
0f:\law\billS\1524 minimum wage - tipped
employee -
amendments\bill 3.docx
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LEGISLATIVE REQUEST REPORT
Expedited Bill 24-15
Human Rights
-
Minimum Wage
-
Tipped Employee
-
Amendments
DESCRIPTION:
Bill 24-15 would:
(1)
modify the amount of the tip credit an employer can use to
calculate the minimum wage for a tipped employee working
in the County;
(2)
require an employer of a tipped employee to submit quarterly
wage reports; and
(3)
require the Executive to establish an online reporting system
for quarterly wage reports.
The changing base pay for a tipped employee
has
caused some
confusion among employers in the County.
Reduce confusion over the amount ofbase pay for a tipped employee.
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
Human Rights, County Attorney
FISCAL IMPACT:
To
be
determined.
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE
OF
INFORMATION:
N/A
Federal, State, and County minimum wages are different.
Robert H. Drummer, Senior Legislative Attorney
APPLICATION
WITIllN
MUNICIPALITIES:
No change.
PENALTIES:
No change.
F:\LAW\BILLS\1 524 Minimum Wage - Tipped Employee - Amendments\LRR.Docx
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County and State Minimum Wage
for Tipped
Employees
County
minimum wage for tipped employees
=
County minimum wage minus County "tip credit."
County
tip credit must not exceed the County minimum wage minus 50% of the State minimum wage.
State
minimum wage for tipped employees
=
State minimum wage minus State "tip credit."
State
tip credit must not exceed State minimum wage minus $3.63.
e)
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Testimony of Shelley Moskowitz
on behalf of Jews United for Justice
to
Montgomery County Council
Hearing on Expedited Bill 24-15,
Human Rights - Minimum Wage - Tipped Employee Amendments
June 9,2015
Good afternoon. My name is Shelley Moskowitz. I am here today on behalf of Jews United for Justice
(JUFJ) which has an active and growing membership base in Montgomery County, Maryland. I have
lived in the metro-DC region for over 25 years and I am a past President of JUFJ's Board of Directors. I
want to thank the Council for holding this hearing today and giving me an opportunity to speak.
Bill 24-15 would modify the amount of the tip credit an employer can use to calculate the minimum wage
for a tipped employee working in the County. It would require an employer ofa tipped employee to
submit quarterly wage reports and it would require the Executive to establish an online reporting system
for those reports; and
it
generally amends the law governing the minimum wage for a tipped employee
working in the County.
JUF J and hundreds of our members were strong supporters of efforts to raise the minimum wage in
Montgomery County and the state ofMaryland. While the bill that went to the Governor's desk gradually
raises the state minimum wage to $10.10, it also included amendments favored by restaurant industry
lobbyists that froze the wages of tipped workers at a sub-minimum rate of $3.63 per hour. Montgomery
County's minimum wage gradually increases to $11.50 in 2018 with tipped workers' wages slated to
be
set at half of the rising state minimum wage. The bill under consideration today would lock Montgomery
County's tipped workers' wages at $4.00 per hour rather than allowing it to grow to $5.05. Why? This
may eliminate some confusion among County employers when they calculate the tip credit as the base
state wage rises, but more than anything, it does a disservice to low-wage tipped workers. They must
make up the gap by relying on tips that by their very nature are unpredictable - they can go up or down
depending on the weather or the shift they are given. While some tipped workers at white tablecloth
restaurants may earn a good living with tips, the average worker earns less than $10 per hour. Since
customers are unlikely to change their tipping behavior,
it
means that more tipped workers will be in
danger of making less than minimum wage.
In theory, employers are supposed to pay their workers the amount needed to bring them up to minimum
wage if their tips are too low. Unfortunately, few managers make it easy for workers to make up the
difference and many employees are either unaware of this regulation or fear for their jobs if they speak
up. Bill 24-15 may improve reporting, but it does not guarantee compliance.
Jewish tradition teaches that we have a duty to "speak up, judge righteously, champion the poor and the
needy (Proverbs 31 :9)." That is why I am here today. Seven states, including California and Minnesota
already provide the same minimum wage for restaurant workers as for everyone else. We will continue to
stand with tipped workers and we want to work with you to close the wage gap. Thank you.
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RESTAURANT
ASSOCIATION
"'.RYLA • •
Council Bill 24-15
Position and Issue Background
The
Restaurant Association of Maryland
strongly supports Council Bill 24-15, which would
freeze Montgomery County's tip wage at the current $4.00/hour. Keeping Montgomery's tip
wage at $4.00 will help eliminate the confusion associated with annual tip wage increases and
avoid putting Montgomery County's full-service restaurants at an even greater competitive
disadvantage with regard to regional tip wages. At $4.00/hour, Montgomery County's tip wage
will still be higher than the frozen tip wages in the rest of Maryland and surrounding jurisdictions
(MD
&
Prince George's County - $3.63; D.C. - $2.77; VA - $2.13).
Given that tips are considered as wages, tipped employees are generally the highest hourly
wage earners in a full-service restaurant, often making significantly more than minimum wage.
Keeping the tip wage at $4.00/hour also makes it easier for full-service restaurant operators to
give raises to their non-tipped employees, which helps to reduce the hourly wage disparity
between dining room staff and kitchen staff.
To address concerns about ensuring that tipped employees make at least the full hourly County
minimum wage in combined tip wage plus tips, we also support this legislation's quarterly wage
and hour reporting requirement for employers of tipped employees to ensure compliance. This
information can be easily obtained from payroll reports.
BACKGROUND:
UNDERSTANDING TIPPED EMPLOYEES' WAGES
THE TIP CREDIT: WHY IT EXISTS
Congress has for decades defined "wages" under Section 203(m) of the Fair Labor Standards
Act (FLSA) to include not just cash, but certain other credits and benefits that employees
receive as a result of their employment, including tips.
Tip income is an important part of the wages and benefits employees receive due to
employment. In fact, tip-earning employees are among the industry's highest-earning
employees, earning a median of $12 to $17 an hour in tips, according to recent National
Restaurant Association research. Employees and employers pay taxes on tipped wages.
For these reasons, section 203(m) of the FLSA allows employers to apply a portion of the tip
earnings employees receive because of their employment toward the employer's obligation to
pay tipped employees the minimum wage. This is called taking a "tip credit." Employers may
take a tip credit only under strict conditions.
(J)
Restaurant Association of Maryland
6301 Hillside Ct Columbia, MD 21046
410.290.6800
FAX 410.290.6882
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TIPS AS WAGES
Federal and state tax laws classify tips as wages and tax employees and employers
accordingly.
• Employees owe income and FICA (Social Security and Medicare) taxes on their tip income.
• The federal government considers all tips as wages for Social Security purposes. Employers
pay Social Security taxes on the tips employees report, and tip income is included in the
government's wage calculations for Social Security benefits.
• The federal government considers all tips as wages for Medicare purposes, and requires
employers to pay Medicare taxes on all reported tip income.
• Tips are also considered as wages for unemployment insurance purposes, and employers
are required to pay unemployment insurance taxes on reported tip income.
HOW THE TIP CREDIT WORKS
If an employee meets the definition of a "tipped employee," tip-credit law allows an employer to
credit toward the required minimum wage rate a portion of the tips received by the employee
and reported to the employer.
Current Montgomery County law allows employers to pay a tipped employee a minimum cash
tip wage of at least $4.00 an hour and take a tip credit of up to $4.40 an hour (Le., the difference
between the current $8.40 County minimum wage and the $4.00 tip wage).
If an employee's hourly tips fall below the tip credit (currently $4.40 an hour) the employer is
responsible for making up the difference by paying any additional wages needed to bring the
employee up to the required County minimum wage. Thus, a tipped employee can never be
paid below the minimum wage. In fact, paying a tipped employee below minimum wage is a
violation of federal, state and local laws.
PROTECTING EMPLOYEES
Federal, state and local wage laws provide strong protections to ensure that tipped employees
never earn less than the applicable minimum wage. Employers must meet the following
conditions in order to claim any tip credit:
1. A tip credit can be taken only against the wages of employees who customarily and
regularly receive at least $30 per month in tips.
2. In cases where an employee's tip earnings fall below the maximum permissible tip
credit, the employer is responsible for making up the difference to bring the employee
up to the applicable minimum wage.
3. The employer must notify the employee of the tip credit taken.
4. Employees must be allowed to retain all of their tips, except for valid tip pools.
5. Employers must have records documenting that employees earned tips in an amount at
least equal to the tip credit claimed.
2
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TIPPED EMPLOYEES' WAGES: MYTHS
&
FACTS
MYTH
#1:
TIPPED EMPLOYEES ARE PAID BELOW MINIMUM WAGE.
FACT: Tipped employees cannot be paid below minimum wage. The minimum wage for tipped
employees is the exact same as the minimum wage for every other employee in Montgomery
County (currently $8.40). Employers must ensure that the tipped employee earns at least $8.40
an hour (or the applicable County minimum wage) in tip wage plus tips or the employer is
responsible for making up the difference. It is not legal for any employee in the County to earn
less than the full minimum wage per hour.
MYTH
#2:
CUSTOMERS ARE SUBSIDIZING RESTAURANT EMPLOYEES' WAGES.
FACT: Restaurant employers invest in their businesses to provide the conditions that enable
employees to earn tips. Congress created the tip-credit system and its safeguards for
employees decades ago because lawmakers recognized that tipped employees receive tips due
to the jobs their employers provide for them. Tipped employees receive additional wages in the
form of tips given to them by their employer's guests. This money is not given to other
employees. That's why federal law treats tipped and non-tipped employees differently for wage
purposes. The tip credit lets employers take tipped employees' special status into account for
purposes of meeting the employer's obligation to pay these employees the minimum wage.
MYTH
#3:
TIPPED EMPLOYEES EARN POVERTY-LEVEL WAGES
FACT: Most tipped employees are far from minimum-wage earners. Server positions in
restaurants provide opportunity, flexibility and, often, very competitive pay. Recent
National
Restaurant Association
research shows that on a national level, restaurant servers earn a
median hourly wage of between $16 and $22, counting both tips and employer-paid tip wage.
Looking at tip income alone, entry-level servers earn a median of $12 an hour in tips, with more
experienced servers earning a median of $17 an hour in tips, according to the research.
NOTE:
These figures represent overall averages; the hourly earnings
of servers
vary significantly based
on the type
of
establishment and the average per-person check size.
MYTH
#4:
EMPLOYERS ABUSE WAGE-AND-HOUR RULES WHEN THEY
PA Y
TIPPED
EMPLOYEES.
FACT: There will always be a few who violate any law imposed on citizens or companies.
However, employers risk costly wage-and-hour lawsuits, significant back-pay requirements and
stiff penalties if they take a tip credit without meeting all the legal requirements for doing so.
Restaurant employers are not willing to knowingly break the law or jeopardize their businesses
by failing to take the required steps for claiming a tip credit. The vast majority of restaurant
operators follow the rules, designed as safeguards for tipped employees. These requirements
include ensuring that tipped employees earn and report tips in an amount equal to at least the
amount of the tip credit claimed, and that the employer has records to prove it. In cases where
an employee's earnings fall below the maximum permissible tip credit, the employer is
responsible for making up the difference to meet the minimum wage.
3
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3236 M Street, NW • Washington, DC 20007 • (202) 333-9180 • Fax: (202) 625-7429 • cIydes.com
Support the Tipped Wage Freeze
Council
Bill 24-15
Jeff Owens
Clyde's Restaurant Group
I want to share some detailed data with you about our employees and customers to help you understand
why it is appropriate to keep the Montgomery County tipped wage at $4.00/hour.
Clyde's Restaurant Group owns and operates 14 restaurants in the Washington D.C. metropolitan area,
two of which are located in Montgomery County.
. Tipped Employees are the Highest Earners on Staff
Today we'have 339 employees in our two Montgomery County restaurant operations of which 285 are
County residents and 178 earn gratuities. We always strive to staff enough servers to give them each a .
small section of tables and the opportunity to provide great service and earn a customary tip of nearly
20%. All tipped employees are required to report their tip income to us to .be included in both the
employer and employee payroll tax calculations.
These tipped employees are highly skilled and provide our restaurants' most significant interaction with
our guests. When claimed tip income considered, they are the highest paid staff in the restaurant.
$18.51
per hour
. During a recent pay period which includes the 14 days from May 13 to 26. our two locations staffed 157
tipped employees as servers, bartenders and bus staff. These employees worked 8,507 hours and
earned $157,477 which Is comprised of the cash wages paid by Clyde's plus declared tip Income from
gratuities. This equates to $18.51 per hour. All employees eamed more than the minimum wage.
The non-tipped departments include the seating hosts and the kitchen staff for which we staffed 128
hourly employees during this pay period. These folks worked 7,559 hours and earned $85,965 in wages
which equates to $11.37 per hour on average. Eight of the 128 non-tipped employees are being paid the
minimum wage of $8.40 per hour with the remaining 120 at higher rates.
aYDE'S OF GEORGETOWN • CLYDE'S OF COLUMBIA • CLYDE'S OF lYSONS CORNER· aYDE'S OF RESTON. CLYDE'S AT MARK CENTER
CLYDE'S OF CHEVY CHASE • CLYDE'S OF GALLERY PLAq • CLYDE'S WILLOW CREEK FARM • THE TOMATO PALACE. TOWER OAKS
LODG~
OLD EBBITI GRILL • EBBITI EXPRESS· THE tOMBS· 1789 RESTAURANT • THE HAMILTON
\..!.!!.J
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The staff departments ranked from the highest to lowest hourly pay is as follows:
Earnings
$32,902.59
$19,619.00
$84,828.01
$20,127.64
$157,477.24
$42,620.87
$11,206.18
$19,309.68
$12
1
828.73
$85,965.46
Per Hour
Hours
$21.69
1,517.19
$19.54
1,004.10
$18.91
4,485.02
$13.41
1.500.90
$18.51
8,507.21
3,418.27
1,019.78
1,797.09
1
1
324.01
7,559.15
$12.47
$10.99
$10.74
$9.69
$11.37
Bartender
Backwalt
FronbNait
Bus
Total Tipped
Cook
Host
Prep
Dish
. Total Non-tipped
"Just raise the prices to pay the higher wages ..... "
Some might say just increase prices to cover higher wages because the dining guests will not mind
paying more.
I
can tell you we are very fortunate that our guests are willing to pay $15.50 for a grilled
chicken salad or $13.50 for a cheeseburger so that we are able to achieve a 2% profit margin. We work
very hard to keep up with the price sensitivity of our guests.
For example, when the wholesale crabmeat market became volatile during the past year we have offered
a crab cake platter priced at $26.95 and $19.95 at different points of time. For the same 26-day period in
May 2014 and May 2015, nine of our restaurants in the Washington
D.C.
metropolitan area sold 14,556
platters when offered at $19.95 but only sold 3,454 of the same platters when offered at $26.95.
I urgeyou to support Council Bill 24-15 to keep the Montgomery County tipped wage at the current
$4.00/hour.
Thank you.
Jeff Owens
Chief Financial Officer
Clyde's Restaurant Group
jowens@Clydes.com
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Drummer, Bob
From:
Sent:
Jenny Baker -DLLR- <jenny.baker@maryland.gov>
Tuesday, June 09,20151:08 PM
Drummer, Bob
Thomas J. Meighen -DLLR-; Kelly M. Schulz -DLLR-; Sarah Harlan -DLLR­
Expedited Bill 24-15 - Tipped Employee Amendments
To:
Cc:
Subject:
Bob-
This email follows up on our conversation yesterday regarding Expedited Bill 24-15 - Tipped Employee. As we
discussed, enforcement of the minimum wage law by the Department's Employment Standards Service (nEssn)
is complaint driven. ESS accepts complaints from employees not third parties. As drafted, if Montgomery
County were to determine that there may be a violation of the Montgomery County tip credit, any complaint
would have to be filed by the employee and not Montogmery County.
Let us know if you have any other questions. Jenny
Jenny Baker
Assistant Attorney General
Department of Labor, Licensing and Regulation
(410) 230-6135
1
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ROCKVILLE, MARYIAND
MEMORANDUM
June 15,2015
TO:
FROM:
SUBJECT:
George Leven1hal, President, County Council
Jennifer A. Hughes, Director, Office ofManagement and
Budge~
Joseph F. Beach. Director, Department ofFinance
U.
FEIS for Council Bill 24-15, Minimum Wage ­ Tipped Employee­
Amendments
Please
find
attached the fiscal and economic impact statements for the above-referenced
legislation.
JAH:fz
cc: Bonnie Kirkland, Assistant Chief Administrative Officer
Lisa Austin, Offices ofthe County Executive
Joy Nurmi, Special Assistant to the County Executive
Patrick Lacefield, Director, Public Information Office
JosephF. Beach, Director, Department ofFinance
James Stowe, Director, Office ofHuman Rights
Loretta
Garcia,
Office of Human Rights
Dieter Klinger, Department ofTechnology Services
Philip Weeda, Office ofManagement and Budget
Naeem Mia, Office of Management and Budget
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Fiscal Impact Statement
Council Bill 24-15, Minimum Wage - Amendments
1. Legislative Summary:
The proposed legislation would do the following:
modify the amount of the tip credit an employer can use to calculate the
minimwn
wage for a tipped employee working in the County;
require an employer of a tipped employee to submit quarterly wage
reports;
require the Executive to establish an online reporting system for quarterly
wage reports; and
generall y amends the law governing the minimum wage for a tipped
employee working in the County.
2.
An
estimate of changes in County revenues and expenditures regardless of
whether the revenues or expenditures are assumed in the recommended or
approved budget.
Includes source of information, assumptions, and
methodologies used.
The new law requires the monitoring of quarterly reports that cover potentially
35,592 employees who are part of the "Tipped Employee" classification in
Montgomery County according to the Maryland Department of Labor, Licensing
and Regulation, Workforce Investment Area (WIA), Occupational Wage
Estimates, April 2015. Categories of such workers include Message Therapists,
Bartenders, Waiters and Waitresses, Hosts and Hostesses at restaurants, lounges
and coffee shops, Gaming Service Workers, Barbers, Hairdressers, Hairstylists,
and Cosmetologists, Miscellaneous Personal Appearance Workers, Personal Care
and Service Worker, Taxis Drivers and Chauffeurs.
The Bill, as drafted, does not require specific action regarding the review or
processing of the reports. If the Office of Human Rights is required to review,
verify, or investigate the reports it is estimated that up to three additional staff
may be required. The office estimates it will need two Investigator II positions
and an Office Services Coordinator at a cost of approximately $270,000.
In addition, the law would require the creation of an electronic reporting system to
be developed by the Department of Technology Services (DTS). DTS estimates
the department will need approximately $100,000 to develop and implement an
internet-based reporting system for employers to submit quarterly reports on
tipped employees. This estimate is based on 800 hours of staff or contractor time
at
an hourly rate of $125 per hour. In addition, there will be on-going costs to
maintain the reporting system. DTS believes the online application will be
available on various County web sites (via links) and will have the ability to
generate reports to measure compliance.
It
is unclear whether or not
civil
penalties for violations would apply; thus any
revenue estimates cannot be determined at this time.
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3. R
evenue
and
expen
ditur
e estimates covenng at
lastth
enext 6
fiscal. years.
e
Personnel
IT
Report
Development
&
Year I
$270,000
$100,000
Year 2
$270,000
$10,000
Year 3
$270,000
$10,000
Year 4
$270,000
$10,000
YearS
$270,000
$10,000
. Total
Year 6
$270,000 $1,620,000
$150,000
$10,000
Maintenance
TOTAL
$370,000
$280,000
$280,000
$280,000
$280,000
$280,000
$1,770,000
It
is unclear whether or not civil penalties for violations would apply; thus any
revenue estimates cannot be detennined at this time.
4.
An
actuarial analysis through the entire amortization period for each bill that
would affect retiree pension or
group
insurance costs.
Not applicable.
5.
An
estimate of expenditures related to County's infOImation technology (IT)
systems, including Enterprise Resource Planning (ERP) systems.
8ee#2.
6.
Later actions that may affect future revenue and expenditures
if
the bill authorizes
future spending.
If
the volume of reports, level of review, or investigation increases over time,
additional resources may be required.
I'
,
7.
An
estimate ofthe staff time needed to implement the bill.
8ee.answer #2.
8.
An
explanation ofhow the addition ofnew staff responsibilities would affect
other duties.
Additional.staffwould require on-boarding and training.
9.
An
estimate ofcosts when an additional appropriation is needed.
Not applicable.
10. A description of any variable that could affect revenue and cost estimates.
Not applicable.
11. Ranges of revenue or expenditures
that
are uncertain or difficult
to
project.
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The Bill, as
drafted,
does not require specific action regarding the review or
processing of the reports and it is unclear whether or not civil penalties for
violations would apply.
12.
If
a bill is likely to have no fiscal impact, why that is the case.
Not applicable.
13. Other fiscal impacts or comments.
None
14. The following contributed to and concurred with this analysis: James Stowe and
Loretta
Garcia,
Office of Human
Rights,
Dieter Klinger, Department of
Technology Services, and Naeem Mia and Philip Weeda, Office of Management
and Budget.
Date
G/rv/ls-
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Economic Impact Statement
Bill 24-15, Human Rights - Minimum Wage - Tipped Employee Amendments
w
Background:
This
legislation would:
• Modify the amount of the tip credit an employer can use
to
calculate the minimum
wage for a tipped employee working in the County,
• Require an employer of a tipped employee
to'
submit quarterly wage reports, and
• Require the County Executive to establish an online reporting system for
quarterly wage reports.
The economic impact statement analyzes the economic effect
a~buted
to the
first
bullet.
1. The sources of information, assumptions, and metJlodologies used.
Sources ofinfonnation include:
• Bureau of Labor Statistics (BLS), U.S. Department of Labor
o
Occupational Employment Statistics (OES),
o
Quarterly Census 'ofEmployment and Wages (QCEW), and
o
BLS Reports,
April 2015.
• Congressional Budget Office (CBO)
• Maryland Department ofLabor, Licensing and Regulation (DLLR)
o
Montgomery County Workforce Investment Area (WIA), Occupational
Wage Estimates, Apri12015, and
'
o
Montgomery County WIA, Food Preparation and Serving Related
Occupations, Projections 2010 2020.
• National Restaurant Association
• "Waiting for
Change:
ls
it Time
to
Increase the $2.13 Subminimum Wage?",
Sylvia
A.
Allegretto, Institute for Research on Labor and Employment, University
of California, Berkeley, December 2013.
• "Legal regulation of tip pooling and tip sharing in the United States hospitality
industry", Rebecca Ahmed,
UNLV Theses/Dissertations/Professional
Papers/Capstones.
Paper 593, Spring 2009.
• "The
Effect of the Tipped Minimum Wage on Employees in the U.S. Restaurant
. Industry",
Southern Economic Journal,
Vol.
80, Issue 3, pp. 633-655, January
2014.
w
In preparation of the economic impact statement for Bil124-15, the Department of
Finance (Finance) obtained data from BLS, CBO,
DLLR,
and the National Restaurant
Association. Finance also conducted a review of the literature on the minimum wage and
tipped employees. However, the literature on the minimum wage, subminimum wage,
and
data
cited therein pertain to the United States and not to the State of Maryland or
Montgomery County.
Page
1
ofS
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.
Economic Impact Statement
Bill 24-1S, Human Rights - Minimum Wage - Tipped Employee - Amendments
The first step
in
the preparation ofthe BIS is the definition oftipped employee. The U.s.
Department of Labor defines a "tipped employee" as one
that
"engages
in
an occupation
in which he or she custoniarily and regularly receives more
than
$30.00 per month in
tips" (Sources: Ahmed and 29 C.F.R. §531.56). According to Ahmed, employees who
make more
than
$30.00 in tips on certain holidays and events, but do not regularly
receive tips, are not classified as "tipped employees". According to DLLR, "employers
are not allowed to pay tipped employees (earning more than $30.00 per month
in
tips)
less
than
$3.63 per hour, provided each employee earns enough tips to bring their average
hourly wage to at least
the
State minimum of$7.25 per hour. Deficiencies must be
supplemented by the employer to bring the wage
up
to the minimum wage level." As of
January 1,2015, the basic combined cash and tip minimum wage rate in Maryland is
$8.00 ofwhich $3.63 is the minimum cash wage and $4.37
is
the maximum tip credit
against the minimum wage. Since January 1,2003, the three rates - minimum wage,
maximum tip credit, and minimum
cash
wage - were raised four times -
in
2007, 2098, .
2009, and 2015.
The next step is to determine which occupational categories (or occupation codes)
comprise tipped employees. Using data from the monthly Current Population Survey,
CBO identifies 11 occupations as tipped employees. The categories include:
• Massage therapists
• Bartenders
• Waiters and waitresses
• Host and hostesses,
restaur~t,
lounge, and coffee shop
• Gaming services workers
• . Barbers
• Hairdressers, hairstylists, and cosmetologists
• Miscellaneous personal appearance workers
• Personal care and service workers
• Taxi drivers and chauffeurs
• Dining room and cafeteria attendants and bartender helpers
For purposes of this economic impact statement, Fina]lce discusses the economic impact
on the restaurant industry and workforce specifically for waiters and waitresses.
BLS states that "the industry with the highest percentage ofworkers earning hourly
wages at or below the federal minimum wage was the leisure and hospitality (18 percent).
Over half of
all
workers are paid at or below the federal minimum wage
in
this
industry,
the vast majority in restaurants and other food services. For many ofthese workers, tips
may supplement the hourly wages received."
A review ofthe economic literature by Finance on tipped employment and the minimum
wage
focused on the restaurant industry. According to the Allegretto study, growth
in
employment in the full-service restaurant industry grew by 72'percent between 1990 and
2012 compared to approximately 22 percent in private sector employment. Since 1996,
Page 2 of5
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Economic Impact Statement
Bill 24-15, Human Rights - Minimum Wage - Tipped Employee" Amendments
the gap between the federal minimum and subminimum wage for tipped workers
increased from 50 percent
to
over 70 percent by 2012.
Accordirig to the article in the
Southern Economic Journal,
the U.S. restaurant industry
employed nearly 9 million wOIkers and accounted for nearly 50 percent of all hourly
workers in the U.S. that
were
paid at or below the federal minimum wage. Therefore,
according to the authors, "because of the sheer size ofthe industry and the number of its
workers that are affected by the minimum wage laws, many studies of earnings and
employment.effects of minimum wages have focused on the restaurant industry."
Finally, the authors suggest
that
workers in limited-service restaurants are rarely eligible
for tips and their study focUsed on the full-service, i.e., sit-down dining, restaurant
industry.
Data on employment, income, and average wages for the restaurant industry in
Montgomery County are either not available or very limited in scope. For example, data
for NArCS code 722, food services and drinking places, from the QCEW database are not
available for Montgomery County. However, DLLR provides employment by Workforce
Investment
Area
for Montgomery County for waiters and waitresses for April 2015.
DLLR estimates employment of 4,980 for waiters and waitresses with a mean wage of
$22,517 and a median wage of$19,137. These data are limited because the wages do not
identify full-time versus part-time workers and whether they are employed by full-service
or limited-service restaurants. DLLR also provides a forecast ofemployment for waiters
and waitresses in the County. According to the WIA Occupational Projections for 2010­
2020, employment in that occupational category is estimated
to
increase from 4,681 in
2010 to 5,244 in 2020 or at an average annual rate of nearly 1.2 percent.
To assess the impact of the State ofMaryland raising the average hourly rates for tipped
.employees, Finance analyzed total employment and total wages with NAICS Code of
722. Data with more detailed NArCS Codes for that industry are not available for the
State ofMaryland. Excluding the recession years of2008
and
2009 but including 2007
(data for 2015 are not yet available), the impact on raising the minimum and
subri:rinimum hourly wages had no negative economic
impact
on employment but a
positive economic impact on total wages from 2006 to 2007.
2. A description of any variable that could affect the economic impact estimates.
While the analysis presented in the last paragraph of section #1 suggests that raising the
subminimum wage rate did not have a negative impact on employment and total wages
in
the food services and drinking places and in fact may have had a positive impact on both,
such analysis and conclusion is limited based on the structure ofthe restaurant industry
and the availability and the level of detail of economic data for that industry. The
variables that could affect the economic impact estimates for emplo-yIp.ent
and
'incomes
are based on the theoretical and empirical effects on raising the subminimum wage
pertaining to the restaurant industry.
Page 3 of5
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Economic Impact Statement
. Bill 24-15, Human Rights - Minimum Wage - Tipped Employee - Amendments
The theoretical effects of a higher subminimum wage on earnings and employment are
based on whether the labor market in the restaurant industry is competitive or
if
the labor
market is monopsonistic. Monopsonistic labor market refers to a market with
just
one
employer who pays the same wage to all ofhis or her workers. Market power is the
ability of a
firm
or business to raise the market price ofa good over its marginal cost and
has a loyal customer based through repeat visits. The market in this example is one in
which the sole employer has market power f!,D.d faces no competition within a specific
market area. The theoretical underlying framework that would determine the economic
impact estimates on raising the minimum wage for tipped employees in the restaurant
industry is whether the restaurant is either competitive or monopsonistic.
According to the article in the
Southern Economic Journal}
"if
the labor market is
competitive, an increase in the minimum wage reduces employment of workers
previously earning the minimum, but could increase or decrease aggregate earnings of the
affected workers depending on the responsiveness of labor demand." The authors further
state that
''if
the labor market
is
monopsonistic, small increases in the minimum wage
could increase both employment and
earnings
of affected workers, but sufficiently large
increases in the minimum reduce employment" Based on the authors empirical analysis,.
such analysis "provides convincing evidence that higher tipped minimum wages increase
earnings but reduce employment" However, the authors qualify their conclusion that
their results are "confronted with the difficulties of separately identifying the true effect
from a spurious relationship."
The issue not analyzed
by
the authors is how the tip credits laws affect
the
composition of
pay for restaurant workers and whether restaurant owners and managers respond by .
mandating more tip pooling. Such variables would have an economic impact on
employment and income by tipped employees. For example, the authors suggest that
if
employers can offset the increased costs ofa higher tipped minimum by requiring tip­
pooling, such pooling reduces the tips to tipped employees and redistributes. those tips to
other workers. Such redistribution may reduce the wages ofother workers and offsets the
cost of the higher tipped minimum. However,
if
tips are shared with other workers, laws
may limit the ability ofan employer to reduce wages through tip-pooling. According to
Ahmed, "the U.S. Department ofLabor and state employment regulations establish .
boundaries withi,n which employers can reliably evaluate tipping policies for legal
compliance."
3. T:he Bill's positive or negative effect,
if
any on employment, spending, savings,
investment, incomes, and property values, in the County.
Because ofthe lack ofspecific
dat~
on employment, wages, and income for
the
restaurant
industry in Montgomery County, Finance reviewed both the litemture on the effects of
tipped minimum wage on employees and the effect ofthe State ofMaryland raising the
maximum tip credit under the State's minimum wage. While the analysis ofthe effect on
Maryland's increase in the tip credit shows that it had no negative impact on employment
but a positive impact on·total wages,
that
analysis is limited as stated in section #2.
Second, the literature presented conclusions based on a study using nationwide data.
Page40fS
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Economic Impact Statement
Bill 24-15, Human Rights - Minimum Wage - Tipped Employee - Amendments
With the caveat oflimited data specific to Montgomery County and a review of the
literature and analysis using Maryland data for food services and drinking places, Finance
assunies that Bill 24-15 could have no negative economic impact on employment but a
positive economic impact on incomes for the affected population in the County.
However, that caveat
is
based on the following:
• The restaurant industry
is
monopsonistic such that employers can increase prices
to their customers to offset the cost ofincreasing the maximum County tip credit
without a negative effect on employment and wages.
4.
If
a Bill is likely to have
no
economic impact, why is that the case?
Based on Finance's caveat present in section #3, Bill 24-14 could have a positive
economic impact
on
income but no economic impact on employment.
5. The following contributed to or concurred with this analysis:
David
Pla~
Mary
Casciotti, and Rob Hagedoom. Finance;
os
F. each, Director
Department ofFinance
.
PageS of5