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F I S C A L I M P A C T R E P O R T

SPONSOR Papen

DATE TYPED 3/5/2005 HB

SHORT TITLE Clarify Minimum Wage for Tipped Employees

SB 250/aSFC

ANALYST Dunbar

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates HB 178

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Labor (DOL)

Office of Workforce Training Development (OWTD)

Economic Development Department (EDD)

Attorney General (AG)

SUMMARY

Synopsis of SFC Amendment

The Senate Finance Committee amendment to Senate Bill 250 increases the minimum wage for

tipped employees. The tips combined with the employer’s cash wage shall not equal less than

$5.60 per hour. Prior to the amendment the amount was the same as the minimum wage of $5.15

per hour. Also an “Applicability” section is added for the provisions of the act to begin after

July 1, 2005.

Synopsis of Original Bill

Senate Bill 250 amends the calculation of a minimum wage for employees who receive tips by

eliminating the reference to a tip credit cap. The bill requires a minimum hourly wage of $5.15

made up from an employer’s cash wage of $2.13 with the remainder assumed to be tips earned

Senate Bill 250/aSFC Page 2

by workers who routinely receive more than $30.00 per month in tips.

Payment of time and a half is required for each hour worked over forty hours in a standard work

week.

Significant Issues

DOL supports the passage of this legislation because of the conflict between limiting tip credits

and cash wages to a total amount not equal to the mandated minimum wage. The Labor Depart-

ment’s Labor and Industrial Division note that this creates an administrative problem as they

need to choose between two conflicting provisions for enforcement purposes. The department

must seek judicial intervention if a dispute between employer and employee cannot be resolved

at the administrative level.

This bill, according to EDD, does not provide a standardized mechanism to determine probable

amount of tips received by employees and depends totally on employee reporting. Tipped em-

ployees are required by Federal Tax Laws to report a minimum percentage of gross sales during

their shift.(In 2004 it was 8%) Employers are accountable for paying payroll taxes on that

amount.

DUPLICATION

SB 250 duplicates HB 178

OTHER SUBSTANTIVE ISSUES

EDD points out that the bill does not state in the event that the combined hourly rate and tipped

income do not meet the minimum wage of $5.15, that the employer is responsible to raise the

minimum hourly wage of $2.13 to an amount that when combined with tipped income equals

$5.15.

WB/sb:lg:rs