Amends the current minimum wage law applicable to tipped employees in the food and beverage industry in order to bring the State's tip credit to a level consistent with federal law. Also changes the tip credit from 20 cents to a percentage of the State's minimum wage so that the credit realistically reflects the level of tips received by tipped employees in the food and beverage industry.

A BILL FOR AN ACT

SECTION 1. The legislature finds that the current law concerning tips does not accurately reflect actual earnings, including tips, received by tipped employees in the food and beverage industry.

Minimum wage is currently $5.25 per hour. Hawaii generally follows the federal minimum wage with a $1 differential. It is expected that the federal government will raise the minimum wage from its current $4.25 to $5.15 over two years. Hawaii's minimum wage was raised to $4.75 in 1992 and $5.25 in 1993.

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 not changed since 1969, has been eroded by inflation to 3.8 per cent of minimum wage today. The tip credit, in 1969, was worth 12.5 per cent of the minimum wage. By contrast, the federal minimum wage law allows a 50 per cent tip credit if the tipped employee receives at least $30 per month in tips.

The federal tax law was changed to require employers to pay Social Security taxes on tip income reported by employees. In 1994, the federal tax law was amended once again to allow employers to take a tax credit for Social Security taxes paid on the reported tip income. Since then the Internal Revenue Service has used changes in the federal law to target the food and beverage industry employer, rather than the tipped employee, for the employee's failure to report tip income on the employee's income tax return.

Tipped employees in the food and service industry generally earn $10 to $15 per hour, including tips. The tip credit should therefore be changed to account for inflation and to reflect the level of tips currently received by tipped employees in the food and beverage industry.

The purpose of this Act is to amend section 387-2, Hawaii Revised Statutes to change the tip credit applicable to tipped employees in the food and beverage industry, from the current 20 cents to a percentage of the State's minimum wage.

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

"§387-2 Minimum wages. (a) 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 $3.85 per hour beginning January 1, 1988, $4.75 per hour beginning April 1, 1992, and $5.25 per hour beginning January 1, 1993. 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 cents 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 fifty cents more than the applicable minimum wage.

(b) Notwithstanding subsection (a), the hourly wage of a tipped employee, in the food and beverage industry, earning at least $20 per month in tips, shall be deemed to be increased on account of tips if the employee is paid not less than twenty per cent below the applicable minimum wage by the employee's employer; provided that notwithstanding any future increases in the State's minimum wage, the actual dollar amount established by this subsection shall remain frozen until the twenty per cent tip credit equals fifty per cent of any future increase in the State's minimum wage.

(c) The hourly wage of a tipped employee in the food and beverage industry, earning less than $20 per month in tips, shall be deemed to be increased on account of tips as provided in subsection (a)."

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.