CLEVELAND (WJW) – Ohio’s minimum wage rose to $10.45 an hour at the start of the year.
For those who make tips, however, employers are permitted to pay them $5.25 an hour, but need to guarantee that their take home will be equal to or more than if they were paid the full-time minimum wage fee.
The ‘tip credit’ is something that the owner of Mallorca restaurant in Cleveland says not only has been a tradition for the restaurant business, but has helped them stay solvent in an extremely competitive industry.
“Its a tough business. You really, really have to like love the business to be in it and you have to be able to work the business. We see a lot of restaurants have failed because of that,” said Laurie Torres, who has owned Mallorca for 28 years.
Torres says payroll, with employees making $5.25 an hour, makes up for about 30% of expenses. She says most tipped employees take home considerably more than that.
“Tipped employees, as a general rule, make $26-$41 an hour. If you eliminate that tip credit, you adjust the payroll expenses for employers about to 50% versus 30%, where it is now when you have margins of 5%. That is not sustainable,” said Torres.
A campaign titled “Raise the Wage Ohio” is working to get more than 400,000 signatures from registered voters in Ohio to place an initiative on the November ballot that would increase minimum wage in the state to $15 in increments between now and Jan. 1, 2028.
It would give restaurants with tipped workers until 2029 before they will have to pay the new rate.
But for the restaurant and hospitality industry in the state, the most significant impact will be the elimination of the tip credit.
Restaurant owners would have to pay all of their employees a minimum of $15 an hour in addition to whatever tips they make.
“For any person in Ohio, a single human being with no children, it take $15.33 for them to live in today’s climate with today’s prices and so that is why we are working to still raise wages for workers,” said Mariah Ross, the effort’s campaign chairman.
Ross also disputes the statistic that tipped employees are taking home as much as $41 an hour.
“Those numbers come from the National Restaurant Association and those numbers are based on an internal study that they do… Those numbers from the National Restaurant Association are national numbers, including outliers such as California where the wages are much higher than Ohio,” said Ross.
Ross says, in Ohio, tipped employees are actually taking home an average of under $12 an hour. She says economic studies have concluded that the minim living wage in Ohio is just over $15 an hour.
Torres says she is not against people making as much money as they can, but the restaurant and hospitality industry is concerned that taking away their tip credit will triple their current payroll expenses in an industry where the profit margins are already very small.
She cites studies which conclude that where minimum wage has increased without a tip allowance, the take-home pay of tipped employees actually decreases.
“It seems like a great thing, $15 an hour plus tips. We want people to make more money, but when you adjust that $15 and make the employer have to pay 10 more dollars an hour, you are looking at a lot of people losing jobs, so what happens is the employer adds money because they have to either raise their prices to afford that or add fees on and when those fees get added on, people start to tip less.”
She believes the only way for restaurants to compensate for the changes and stay in business would not only mean the loss of jobs, but also the kind of service customers have come to expect.
“If you adjust their payroll up that significantly that quickly, you are going to put them out of business. Either you are going to put them out of business or they are going to have to switch their service to counter service and eliminate having employees or eliminate having as many employees, which means your service goes down,” said Torres.
While the effort to get the minimum wage question on the ballot in November requires at least 413,000 signatures by July 5, Ross believes they will have far more than that by then.
More than 350,000 signatures have already been collected,
“We are not here to try to harm small business, we want small business to succeed because small business and workers are hand in hand and so that is why we have that incremental increase built in,” said Ross.