Workforce

Lawmakers propose raising the federal minimum wage to $17 and killing the tip credit

The Democratic proposal would phase in the changes over a five-year stretch. The bill is a pet measure of Sen. Bernie Sanders.
Bernie Sanders' proposal calls for raising the federal minimum wage by 135% and killing the tip credit. | Photo: Shutterstock

The tip credit would be phased out nationwide and the federal minimum wage raised to $17 an hour under a bill introduced in Congress today by Sen. Bernie Sanders and Rep. Bobby Scott.

The proposal calls for raising the minimum wage for restaurant employees and other hourly workers to $17 an hour over a five-year stretch. The ramp-up would start with a $2.25-an-hour bump in the pay floor, currently at $7.25 an hour, three months after the law should pass.

That wage of $9.50 would increase by $1.50 an hour every year thereafter until reaching $17, a five-year process.

One year afterward, the U.S. Secretary of Labor would be empowered to adjust the minimum in accordance with changes in the cost of living. That authority would then be exercised every year thereafter.

Because many restaurant employers already pay more than $17 an hour, the industry may be more concerned about the changes in the tip credit, the concession extended to employers of workers who regularly collect gratuities. Under the long-standing break, employers can count an employee’s reported tips as part of the minimum wage the worker is due.  

Under current federal law, that means a restaurant owner need pay a server or bartender just $2.13 an hour if they collect at least $5.22 on average in tips, which brings them up to the minimum of $7.25 an hour.  The $5.22 is known as the tip credit.

Under the newly introduced Raise the Wage Act of 2023, restaurant employers would be required to directly pay tipped workers at least $6 of the $9.50 they’d be due as their minimum pay during Year One.

The employer’s cash payments would then rise year by year until gratuities do not count at all toward the $17 an hour that would be the federal minimum by then.

Employees would collect tips on top of what they were paid directly by their employers.

The legislation would wipe out the tip credit in the 43 states that currently allow gratuities to count toward wages.

Sanders and Scott’s bill would phase out the entry-level wage that employers are permitted to pay first-time job holders under age 20 in certain circumstances.

Although Sanders is an Independent, he usually votes along Democratic lines and chairs the Senate Health, Education, Labor and Pensions Committee. Scott, a Democrat from Virginia, is his party’s most senior member of the House Committee on Education and the Workforce.

The Democrats, with Sanders outspoken support, have set an update of federal wage rules as a priority of their party. The regulations have not been changed since July 24, 2009.

Because Democrats hold a narrow majority in the Senate, and Sanders wields more than rank-and-file influence, passage of the act is a possibility there. But Republicans control the House, lessening the chances of passage there.

President Biden has routinely spoken in support of raising the minimum wage, meaning the act would likely become law if Democrats were able to push it through the House.

Both raising the federal pay floor and killing the tip credit have been major quests of labor unions, traditionally strong allies of the Democrats.

The proposed legislation will be certain to draw strong resistance from the restaurant industry if passage appears possible.

"Eliminating the tip credit as a compensation model is a non-starter," Sean Kennedy, EVP of  public affairs for the National Restaurant Assocation, said in a statement. "This would have the perverse effect of lowering the take-home pay for countless workers who have tipped restaurant jobs. Their median income is $27 an hour, far above the proposed changes, so we’ll fight for them to keep the current system of tipping and that high earning potential."

The Employment Policies Institute, or EPI, a pro-industry thinktank funded at least in part by restaurant companies, has warned that increasing the nationwide minimum wage to $17 an hour would prompt employers to kill 1.2 million jobs. Eliminating the tip credit would wipe out another 447,000 positions, according to the group.

“This bill is a recycled version of Sanders’ ill-conceived $15 wage proposal, which was shot down by a bipartisan group of senators in 2021,EPI Research Director Rebekah Paxton said in a statement. “It appears Sanders and his Big Labor allies have not learned from their mistakes.”

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