Tip Credit/Opportunity Wage

Background

Tip credit was removed from state law in the 1977 session. Efforts during the 1989 session to include a tip credit provision in starting wage legislation were defeated by a vote of 30-30 on a minority version of the bill in the House of Representatives. The Oregon Restaurant Association (ORA) introduced legislation in 1995 that stated a tip credit could be allowed when the amount included for tips was limited to the difference between $4.75 and future minimum wage, and that the tip credit would never exceed 50 percent of the new minimum wage. The Federal Government passed a minimum wage increase in 1996 that established a federal tip wage at $2.13 and included a fifty-cent credit per hour as an opportunity wage for youth. In 1999, ORA introduced HB 2793 that set the tip wage at $6.00 and established a fifty-cent credit opportunity wage for youth. This would only allow utilization of a tip wage when substantial tips were reported. This bill was passed by both the House and Senate, only to be vetoed by the Governor. In 2005, ORA introduced HB 2409 which would have set the tip wage at $7.25 and established a fifty cent credit opportunity wage for minors for the first 90 days of employment. Unfortunately, the Governor made it clear that he would not support the bill. ORA was also able to attach a federal tip credit preemption to the 2006 federal minimum wage increase that passed the house.

Issue

Although federal law allows for a $2.13 tip wage and a fifty-cent credit for youth, state wage laws supercede and Oregon employers are required to pay tipped employees and youth the full amount of the state minimum wage. Increases in the state minimum wage, without tip credit provisions, have forced Oregon employers to reduce the number of available jobs, cut back hours to employees, and reduce the amount of wage increases they can give to non-tipped employees. The lack of an opportunity wage for youth has caused employers to slow their hiring of youth when experienced workers are available.

Current Oregon law requires employers to consider tips as wages for computation and payment of Oregon Employment Division taxes and workers’ compensation premiums. To not consider these same tips as wages for the purpose of minimum wage is inconsistent and unfair. The Internal Revenue Service (IRS) requires employees to report all tips to employers because they are taxable as income. Federal law requires employers to pay Federal Unemployment Taxes (FUTA) and Social Security Taxes (FICA) on tips reported to them by their employers, thereby treating tips as wages. Recent Supreme Court decisions reinforced these IRS actions. Forty-three other states allow some type of a tip credit provision.

ORA Position

ORA strongly supports legislation allowing for some types of tip credit and opportunity wage for future increases in the minimum wage to offset the job loss and inequity that is caused when the starting wage is raised without a provision for tipped employees and youth.