With Chicago's new minimum wage law, Mayor Brandon Johnson is not doing what's best for the people, consumers, and restaurants, but what's best for himself
While I agree with the sentiment of the article, I think some of the details are not quite right. (I'm pretty sure, but it's confusing.) There is no federal law that requires restaurants to "true up" wages. The federal minimum wage is $7.25. The requirement that you are thinking of is either from the state or Chicago. I also don't believe that there is a federal program that subsidizes the difference, although like most Chicago restaurants I suspect, we wouldn't know because our tipped employees make $30-40/hour now. And a last point, and this is interesting if I've got it right and I'm pretty sure that I do - if a restaurant pays all of it's staff the full minimum wage of $15.80/hour, it frees up the restaurant to distribute tips as it sees fit to the entire staff (but not management) including back of house. And I mean tips here, not a service charge. (There are tax reasons why tips are preferable to a restaurant than service charges, which I'll skip here.) So, for example, a restaurant could reduce the servers share of tips by an amount equivalent to the rise in their base pay (minimum wage) and give it to the cooks and other back of house. In my opinion, the notion of giving servers a $6/hour raise while keeping the back of house staff roughly "as is" is not sustainable.
I see what you're saying. I guess maybe I should explain it better, but ultimately I'm talking about TIP credits including FICA which the restaurants won't be able to claim anymore as tax breaks. So yes, it's not a fund, but it is real dollars that the federal government will have to be paid now. And yes, that's the irony of this law, most people don't see the tip credits, and most tipped minimum wage employees already make over $15.80, so this law isn't helping most people.
I've been told that laws even with this revision, you still can not touch or redistribute tips, unless they're collected as a service fee.
I agree keeping back of house stagnant while giving more to front of house is not sustainable and thus like I say, hopefully an upside here is that the redistribution of funds offered by a service fee goes toward righting that ship. We definitely see it as the reason many have already moved to this model.
I reached out to the IL Dept. Of Labor some weeks ago and they confirmed that, if all staff are paid at least the minimum wage, then a tip pool may be distributed among all the staff. (See link at end.) Regarding tip credits, a problem in using the term "tip credit" is that it can be used in two very different, unrelated scenarios. The most common usage is that restaurants presently are given "credit" for tips making up the difference between base pay and the minimum wage. The more obscure usage, tax law, is that restaurants are given a tax credit at year end for payroll taxes paid on tips. (Thus, imo, is it foolish for restaurants to switch to a service fee and lose this credit.) My understanding is that this provision was put in the Fed tax code to encourage employers to accurately report tips. This federal credit has nothing to do with Chicago's proposed ordinance, and I have heard no talk of repealing it. I doubt the IRS is working with Mayor Johnson on federal tax law? https://www.nolo.com/legal-encyclopedia/can-require-waiters-pool-tips-the-dishwashers-cooks.html#:~:text=Back%20of%20the%20house%20employees,tips%20with%20non%2Dtipped%20coworkers.
I would agree feds are probably not leaning on Mayor Johnson, although there will be no tip credit now because you won't have to true anyone up. They will just be paid the minimum wage so there is no shortfall.
I see the legal disclaimer link you posted. My understanding is Chicago is more stringent here, like you can't touch the tips period or so I've been told by a few restaurant owners. Certainly there was some basis for this in the famous Charlie Trotter lawsuit, although in that case they probably weren't paying full minimum wage at that time.
I’m glad you addressed this issue as I was really confused about it. And is this really a done deal?? I sure hope not, based on your analysis. Btw, I am pro-union but did not vote for Johnson and believe he will be a one term mayor.
What do you expect from someone who: 1) has never run or worked for a private business, and 2) considers businesses (even small businesses) inherently evil.
While I agree with the sentiment of the article, I think some of the details are not quite right. (I'm pretty sure, but it's confusing.) There is no federal law that requires restaurants to "true up" wages. The federal minimum wage is $7.25. The requirement that you are thinking of is either from the state or Chicago. I also don't believe that there is a federal program that subsidizes the difference, although like most Chicago restaurants I suspect, we wouldn't know because our tipped employees make $30-40/hour now. And a last point, and this is interesting if I've got it right and I'm pretty sure that I do - if a restaurant pays all of it's staff the full minimum wage of $15.80/hour, it frees up the restaurant to distribute tips as it sees fit to the entire staff (but not management) including back of house. And I mean tips here, not a service charge. (There are tax reasons why tips are preferable to a restaurant than service charges, which I'll skip here.) So, for example, a restaurant could reduce the servers share of tips by an amount equivalent to the rise in their base pay (minimum wage) and give it to the cooks and other back of house. In my opinion, the notion of giving servers a $6/hour raise while keeping the back of house staff roughly "as is" is not sustainable.
I see what you're saying. I guess maybe I should explain it better, but ultimately I'm talking about TIP credits including FICA which the restaurants won't be able to claim anymore as tax breaks. So yes, it's not a fund, but it is real dollars that the federal government will have to be paid now. And yes, that's the irony of this law, most people don't see the tip credits, and most tipped minimum wage employees already make over $15.80, so this law isn't helping most people.
I've been told that laws even with this revision, you still can not touch or redistribute tips, unless they're collected as a service fee.
I agree keeping back of house stagnant while giving more to front of house is not sustainable and thus like I say, hopefully an upside here is that the redistribution of funds offered by a service fee goes toward righting that ship. We definitely see it as the reason many have already moved to this model.
I reached out to the IL Dept. Of Labor some weeks ago and they confirmed that, if all staff are paid at least the minimum wage, then a tip pool may be distributed among all the staff. (See link at end.) Regarding tip credits, a problem in using the term "tip credit" is that it can be used in two very different, unrelated scenarios. The most common usage is that restaurants presently are given "credit" for tips making up the difference between base pay and the minimum wage. The more obscure usage, tax law, is that restaurants are given a tax credit at year end for payroll taxes paid on tips. (Thus, imo, is it foolish for restaurants to switch to a service fee and lose this credit.) My understanding is that this provision was put in the Fed tax code to encourage employers to accurately report tips. This federal credit has nothing to do with Chicago's proposed ordinance, and I have heard no talk of repealing it. I doubt the IRS is working with Mayor Johnson on federal tax law? https://www.nolo.com/legal-encyclopedia/can-require-waiters-pool-tips-the-dishwashers-cooks.html#:~:text=Back%20of%20the%20house%20employees,tips%20with%20non%2Dtipped%20coworkers.
I would agree feds are probably not leaning on Mayor Johnson, although there will be no tip credit now because you won't have to true anyone up. They will just be paid the minimum wage so there is no shortfall.
I see the legal disclaimer link you posted. My understanding is Chicago is more stringent here, like you can't touch the tips period or so I've been told by a few restaurant owners. Certainly there was some basis for this in the famous Charlie Trotter lawsuit, although in that case they probably weren't paying full minimum wage at that time.
I went to a briefing on this and you explained it with more detail than they did. Hahahahhaha!
Thanks for breaking this all down! I too was saddened by the mistreatment of Allison Arwady but then again I didn’t vote for Mr. Johnson
I’m glad you addressed this issue as I was really confused about it. And is this really a done deal?? I sure hope not, based on your analysis. Btw, I am pro-union but did not vote for Johnson and believe he will be a one term mayor.
Still can't believe that anyone voted for this guy.
What do you expect from someone who: 1) has never run or worked for a private business, and 2) considers businesses (even small businesses) inherently evil.
Shared to Facebook. I stuck with it because I knew that even my addled brain should be reading it. Great reporting.