Report Title:

Wages; tip credit

Description:

Increases the tip credit from 25 cents to $1.25 upon approval in 2006, to $2.25 on 01/01/07 and to 25% of the tips claimed by an employee as income 01/01/08.

HOUSE OF REPRESENTATIVES

H.B. NO.

2392

TWENTY-THIRD LEGISLATURE, 2006

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO TIP CREDIT.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Hawaii's tip credit law needs amending because the current law concerning tips does not accurately reflect actual earnings, including tips, received by tipped employees in the food and beverage industry.

The state minimum wage is currently $6.75 per hour. In 1969, when the minimum wage was $1.60, the State allowed employers of tipped employees to take a credit of 20 cents of every wage dollar paid to a tipped employee if that tipped employee received at least $20 per month in tips. Hawaii's tip credit, which has only been adjusted once since 1969, has been eroded by inflation.

Hawaii's "tip credit" is significantly less than the federal tip credit and the tip credit in the majority of other states. Further, it is counterproductive to increasing the wages of the lowest paid workers in businesses when tipped employees earn two to six times the minimum wage in tips per hour, as employers are mandated to increase the wages of the highest wage earners when tip income is taken into account.

Additionally, the current "tip credit" does not take into consideration the investment the employer makes to create the conditions that enable tipped employees to earn tips. It creates a significant disparity in earning ability between tipped and non-tipped employees within a business.

As such, tipped employees in the food and service industry generally earn substantially more than the minimum wage because their income includes a mandatory wage of $6.75 per hour, including tips. The tip credit, which is set at 25 cents, should therefore be changed to account for past inflation and to reflect the level of tips currently received by tipped employees in the food and beverage industry. This change would assist the service industry in providing greater benefits and wages to those employees who are not tipped and are paid at a lower pay scale. These employees are the usually the cooks and food preparation personnel who are also more likely to be parents and grandparents who are the main providers for their families.

This Act provides relief to Hawaii employers by increasing the tip credit from 25 cents to $1.25 upon approval, and to $2.25 on January 1, 2007. This legislation also provides a formula to be enacted January 1, 2008, that will allow for the tip credit to automatically adjust to inflation.

SECTION 2. Section 387-2, Hawaii Revised Statutes, is amended to read as follows:

"§387-2 Minimum wages. Except as provided in section 387-9 and this section, every employer shall pay to each employee employed by the employer wages at the rate of not less than:

(1) $6.25 per hour beginning January 1, 2003;

(2) $6.75 per hour beginning January 1, 2006; and

(3) $7.25 per hour beginning January 1, 2007.

The hourly wage of a tipped employee may be deemed to be increased on account of tips if the employee is paid not less than [25 cents] $1.25 below the applicable minimum wage by the employee's employer and the combined amount the employee receives from the employee's employer and in tips is at least 50 cents more than the applicable minimum wage.

Beginning January 1, 2007, the hourly wage of a tipped employee may be deemed to be increased on account of tips if the employee is paid not less than $2.25 below the applicable minimum wage by the employee's employer and the combined amount the employee receives from the employee's employer and in tips is at least 50 cents more than the applicable minimum wage."

Beginning January 11, 2008, the hourly wage of a tipped employee may be deemed to be increased on account of tips if the employee is paid not less than twenty-five per cent of the tips claimed by the employee as income below the applicable minimum wage; and the combined amount the employee receives from the employee's employer and in tips is at least 50 cents more than the applicable minimum wage provided that the cash wage paid by the employer is not less than $4 per hour."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.

INTRODUCED BY:

_____________________________

BY REQUEST