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F I S C A L I M P A C T R E P O R T
SPONSOR Smith
DATE TYPED 2/26/2005 HB
SHORT TITLE Clarify Minimum Wage for Tipped Employees
SB 899
ANALYST Dunbar
APPROPRIATION
Appropriation Contained Estimated Additional Impact Recurring
or Non-Rec
Fund
Affected
FY05
FY06
FY05
FY06
NFI
(Parenthesis ( ) Indicate Expenditure Decreases)
SOURCES OF INFORMATION
LFC Files
Responses Received From
Department of Labor (DOL)
Office of Workforce Training Development (OWTD)
Economic Development Department (EDD)
Attorney General Office (AGO)
SUMMARY
Synopsis of Bill
Senate Bill 899 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
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
This bill revises the calculation under Section 50-4-22 of the Minimum Wage Act (Sections 50-
4-1 et seq.) with regard to minimum wages for employees who receive more than $30.00/month
in tips. The AGO indicates the current minimum wage for those employees is $2.125 per hour.
pg_0002
Senate Bill 899-- Page 2
This bill would change that to $2.13 per hour. Current law allows an employer to consider tips as
part of wages, and take “credit” for those tips against the minimum wage salary of $2.125/hour,
but that “credit” may not exceed 50% of $2.125/hour or $1.0625/hour. Current law therefore re-
quires employers to pay at least $1.0625/hour regardless of the amount of tips earned. It also al-
lows employers to take a credit of up to $1.0625/hour for those tips, regardless of the amount of
tips actually earned. This bill would change that calculation to provide that tips combined with
salary cannot be less than $5.15/hour.
Current law seems to allow a credit against the $2.125/hour minimum, up to $1.0625/hour, and
also requires the payment of at least $1.0625hour, regardless of the amount of tips actually
earned. This bill requires a base minimum wage salary of $2.13/hour for those making over
$30.00/month in tips. It then allows employers to take a credit against that base minimum wage
salary ($2.13/hour) for tips received, as long as those tips, plus any salary paid, equal $5.15/hour.
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.
OTHER SUBSTANTIVE ISSUES
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.
WB/sb