Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Labor, to which was referred S.B. No. 294, S.D. 1, entitled:

begs leave to report as follows:

The purpose of this measure is to increase the minimum wage amount to $7.00 beginning July 1, 2005, and provide for an annual automatic increase thereafter.

This measure also provides temporary tax relief to employers by lowering the maximum taxable wage base for calendar years 2005 through 2007.

Testimony in support of this measure was submitted by the ILWU Local 142 and the Hawaii State Teachers Association. Testimony in opposition to this measure was submitted by the Department of Labor and Industrial Relations, the Department of Environmental Services of the City and County of Honolulu, National Federation of Independent Business Hawaii, the Chamber of Commerce of Hawaii, the Retail Merchants of Hawaii, the Hawaii Restaurant Association, and four individuals.

Your Committee finds that although the minimum wage amount was recently increased effective in 2003, the increase has failed to keep pace with the escalating rate of inflation. As a result, a worker's purchasing power has continued to diminish over time. In Hawaii, the cost of living is higher than that of much of the rest of the nation, which compels many individuals to work two jobs just to make ends meet. As we have turned the corner, heading towards improved economic times, your Committee believes that it is necessary to assist entry-level workers to allow them to share in this period of economic growth and prosperity. Prior to the most recent increase, no previous adjustment had been made to the minimum wage amount since 1993. In order to avoid the Legislature's need to continually revisit the issue year after year and to prevent the necessity for large increases when no adjustment has been made for several years, an automatic annual adjustment should be instituted. It is also your Committee's intent that the Department of Business, Economic Development and Tourism shall annually calculate and publish the gross state product deflator to be utilized in making the annual adjustment. Furthermore, your Committee does not believe that high inflation should disproportionately increase the minimum wage adjustment amount and believes that a cap should be placed upon the adjustment.

Your Committee further finds that some concern exists regarding the current tip credit law. The law currently allows an employer to presume that tipped employees are receiving a certain level of tips each pay period, thereby allowing the employees' pay to be reduced accordingly. A majority of the states across the nation have tip credit laws. Of those states with tip credit laws, the amount of the tip credit ranges from about one to three dollars, well over the twenty-five cents allowed here in Hawaii. Testimony received by your Committee indicates that one way in which to address the financial burden imposed upon employers due to increases in the minimum wage amount is to raise the tip credit amount to offset the additional costs. Your Committee believes that the issue should be further examined throughout the session so as to determine whether such an increase is appropriate.

Additionally, your Committee finds that although Hawaii is fortunate to enjoy one of the lowest unemployment rates in the country, unemployment insurance tax relief is long overdue for employers within the State as well. Therefore, your Committee determines that at least temporary tax relief for calendar years 2005, 2006, and 2007 should be provided in order to promote business growth and economic prosperity through the creation of new jobs, the expansion of benefits, and the provision of pay increases to employees.

Accordingly, your Committee has amended this measure as follows:

As affirmed by the record of votes of the members of your Committee on Labor that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 294, S.D. 1, as amended herein, and recommends that it be referred to the Committee on Ways and Means in the form attached hereto as S.B. No. 294, S.D. 2.