Policy Wonk: All sides win in compromise on Portland's tipped wage

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On July 6 the Portland City Council adopted a minimum wage ordinance that did two important things.

First, it raised the minimum wage in the city to $10.10 an hour effective Jan. 1, 2016, and $10.68 effective Jan. 1, 2017.

Second, the ordinance provided that each Jan. 1 thereafter, the minimum wage would increase in accordance with cost-of-living increases.

In addressing these issues, the ordinance accepted the principle embodied in state law that allows a portion of an employer’s minimum wage obligation to be met by employee tips, the so-called tip credit.

The ordinance did not accept state law provisions that fashioned a 50/50 split between a tip credit, the employee’s share of a minimum wage, and the employer’s direct wage share of minimum wage obligations.

Had the city followed the state’s 50/50 split between the employees’ share of the minimum wage and the employer’s direct wage share, the burdens of Portland’s higher minimum for the first two years would have been divided equally: $5.05 for each group in 2016, $5.34 for each in 2017.

Their respective shares would rise in each succeeding year as the Consumer Price Index rose, but would remain equal. This arrangement is fair and complies with state law.

Portland chose not to follow this pattern.

Instead, rightly or wrongly, knowingly or unwittingly, Portland’s minimum wage ordinance contained a tipped wage provision that held the tip credit (the employee’s share of a rising minimum wage) constant at the level imposed by state law, $3.75 per hour.

It follows then that the enacted ordinance required employees in 2016 to pay $3.75, while employers would pay $6.35 in direct wages; in 2017 employees would again pay $3.75, and employers would pay $6.93. Each year thereafter, the disparity between the employee’s share and the employer’s share would widen.

Understandably, employers of tipped wage workers were disappointed and angry when these widening disparities became clear. They seem unfair.

More importantly the ordinance did not reflect the express intent of some of the councilors who voted for its passage. They wanted to hold the employer’s share of Portland’s rising minimum wage constant. The upshot of this confusion was that employers, the press and several councilors called for a reconsideration of the tipped wage provision contained in Portland’s ordinance.

At a workshop held prior to the council’s evening meeting on July 20, those councilors who wanted to reverse the enacted tipped wage provision pressed their view. In 2016 they would hold the employer’s share of the new minimum wage constant at $3,75 per hour, and the employee’s share would be $6.35; in 2017 employers would again pay $3.75, and employees would pay $6.93. In each following year this disparity would widen.

This sharing of the burdens imposed by a rising minimum wage seems unfair to tipped wage employees. Now they are disappointed and angry. Their anger is heightened by the fact that employers of tipped wage workers, almost invariably, have a much higher income level than their employees.

Other councilors at the workshop wanted the city attorney to provide them with a range of tipped wage alternatives. All councilors agreed that a motion to reconsider the existing ordinance was needed. That motion was made and passed unanimously at the evening meeting.

However, having acted precipitously on July 6, and wanting to receive and digest tipped wage options, the council postponed final action on a tipped wage provision to Sept. 9.

Beyond the three tipped wage options noted, two other suggestions were discussed.

First, some argued that all “service employees” should be exempt from Portland’s minimum wage ordinance; this would be unfair to a large segment of the city’s minimum wage workers, and is inconsistent with state minimum wage law.

Second, some noted that several states have eliminated the tip credit altogether, and said Portland should do likewise. But Maine is not one of those states. Maine law provides a tip credit. Eliminating it in Portland’s ordinance is unfair to tipped wage employers, and would almost certainly be challenged in court.

Of the three viable options noted, it is hard to understand why the council would favor one side or the other (employees or employers) in the context of raising minimum wages. Whichever choice they make, half the city will be angry.

Picking favorites should not be the business of city government, particularly when a compromise option, that is, following the provisions of Maine’s minimum wage law, is readily available.

This compromise, a 50/50 split of the burdens of raising the minimum wage, is a win/win/win situation for all sides.

Employees win because their annual wage increase is larger than the tip credit increase.

Employers win because the direct wage increase each year is far less than the increase they face under the July 6 ordinance.

The city wins because it will have acted fairly and responsibly: A rising minimum wage improves the local economy and the standard of living for all low-wage workers in the city.

Sidebar Elements

Orlando Delogu of Portland is emeritus professor of law at the University of Maine School of Law and a longtime public policy consultant to federal, state, and local government agencies and officials. He can be reached at orlando.delogu@maine.edu.

  • little crow

    Mr. Delogu is half right when he says “picking favorites should not be the job of city government”. What he should have said was “Setting wages and prices is not the job of city government”. His assertion that this meddling will improve the local economy demonstrates his ignorance of basic economic priciples.