Testimony to New York State Department of Labor “Subminimum Wage Hearing”

Presented by:
Frank Kerbein
Director, Center for Human Resources

Friday, May 18, 2018

The Business Council is the state’s largest statewide employer advocacy organization, representing 2,400 private sector employers – large and small, in all sectors, across the entire state. These businesses employ in excess of one million New Yorkers. We often address issues impacting the state’s economic competitiveness, including business costs driven by state policy actions.

We are here today to express our concerns regarding the Department’s use of wage orders to dramatically change terms and conditions of employment in ways that adversely impact New York businesses.

In summary, we oppose the proposal to repeal the tip credit allowable under the Department of Labor’s wage orders.

This proposal is more of a political statement than a reflection of economic reality.

First and foremost, this proposal will impose significant additional payroll costs on affected employers. Government-imposed costs matter, and this proposal will have an adverse impact on employers, and – contrary to the intent of this proposal – on their employees as well.

We welcome the significant turnout today by business owners and hospitality employees. We expect that our general comments this morning will be reinforced over and over today by business owners sharing their business-specific circumstances and concerns.

If it were to eliminate the tip credit, the Department would dramatically modify the business model for hundreds of New York businesses – large and small – and subsequently put those businesses – and their employees - at risk of economic harm. If the tip credit were repealed, the direct hourly wage cost for impacted employers would have increased from $5 in 2011, to $7.50 in 2016, to $15 by as early as the end of 2018 (for New York City businesses.)

This would be in addition to other recent state imposed labor mandates including annual adjustments to the standard minimum wage and minimum salary levels for exempt employees. Compounding these financial pressures are new requirements for paid family leave, harassment training and the specter of administrative costs and looming financial penalties related to employee scheduling.

This proposed change to the tip credit would certainly have an impact on jobs. To control costs, restaurants would be forced to reduce the hours of these employees and/or eliminate jobs. Jobs like bussers and food runners could be eliminated – requiring servers to pick up additional duties. And many businesses would face difficulties in finding employees to work busy, otherwise profitable shifts – like weekends and holidays.

We have all seen an increased use of technology in these industries as they adjust to increased labor costs imposed upon them. We would expect a corresponding acceleration in the use of this technology.

In addition to lost jobs, the corresponding increase in menu prices will result in families eating out less and tipping less – directly impacting those this proposed change is designed to help.

We urge the Department of Labor to focus on the real-world impact of a tip credit repeal. For the reasons we just provided, The Business Council opposes the elimination of the subminimum wage.

As a final point, we, like many, have read with concern recent reports on sexual harassment in general, as well as those on sexual harassment in the hospitality industry. Among other things, the data show comparable rates in the hospitality industry, where tipping is prevalent, and in the retail and manufacturing sectors, where tipping is rare or non-existence. Something other than wage structure is at play here, so we question whether repeal of the state tip credit would have any material impact.

Moreover, New York State has robust anti-discrimination laws, and significant law enforcement authority and resources. All employers have a legal duty to provide a harassment-free work environment. The state’s laws are becoming even more explicit with this year’s mandate on all employers to adopt an anti-harassment policy and provide annual anti-sexual harassment training to all employees. These measures, far more than changes in wage law, provide a direct response to workplace harassment.

On behalf of The Business Council, thank you for the opportunity to provide comments today.