Minnesota's minimum wage(s): 9 key questions answered

Restaurant workers marched to a rally in front of St. Paul City Hall
Restaurant workers marched to a rally in front of St. Paul City Hall on Monday, Sept. 17, 2018, calling for the city to include a tip credit in an expected municipal minimum wage hike.
Tim Nelson | MPR News.

There is no one "minimum wage" in Minnesota. There are minimum wages.

Regulation for Minnesota employers is a complex system of calculating pay, and it is about to get more complicated as St. Paul weighs a new minimum wage ordinance. Here's a guide to what is and what will be as the state and its largest cities debate, and change, wage policies.

1) What's the minimum wage in Minnesota?

It's complicated.

The Legislature passed a new minimum wage law in 2014. It initially set two wage figures — $8 an hour for larger employers, $6.50 for smaller businesses — but as of this year, those minimum wages will be indexed to inflation, so further increases won't be subject to legislative approval. (The indexed increase is capped at 2.5 percent.)

The current state minimum hourly wage for employers with annual gross revenue over $500,000 is $9.65. For enterprises with less than half a million in annual revenue, the wage is $7.87. That will go up on Jan. 1 to $9.86 for large employers and $8.04 for small employers.

2) What's the federal minimum wage?

Minimum wage workers rally to raise the minimum wage to $15 at city hall
A crowd that gathered at city hall in Minneapolis, Minn., to demonstrate and rally to increase the minimum wage to $15 and not consider tips as wage on June 22, 2017.
Maria Alejandra Cardona | MPR News

The federal minimum wage, set by the Fair Labor Standards Act, has been $7.25 an hour since July of 2009. The wage rose from $5.15 an hour in 1997 to $5.85 an hour in 2007 and to $6.55 in 2008 before hitting the current level nearly 10 years later.

3) Does everyone get the minimum wage?

In Minnesota, no. There are exemptions for babysitters, volunteers for non-profit organizations and some workers covered by federal transportation law, like drivers, mechanics and loaders. Minnesota also has an exemption for workers with disabilities.

4) Minneapolis passed its own wage ordinance. What does that do?

Minneapolis passed an ordinance in June 2017 requiring employers to eventually pay a $15 an hour minimum wage. That will be phased in for large employers over five years and for small employers over seven years. That means large employers will hit the $15 wage in 2022. Small employers will hit $15 in 2024.

The current minimum wage in Minneapolis is $11.25 an hour for large employers, and $10.25 an hour for small employers.

Minneapolis has a training and youth exception, requiring employers to pay employees under the age of 20 at least 85 percent of the city minimum for the first 90 days of employment. That only applies to city-approved training and apprenticeship programs.

There is no exemption for employees who earn tips.

Here's a chart of how the minimum wage will rise in Minneapolis:

How the minimum wage will rise in Minneapolis.
How the minimum wage will rise in Minneapolis.
MPR News

5) What is St. Paul planning?

St. Paul introduced a new ordinance that would raise the minimum wage to $15 an hour in three phases. For employers with more than 100 people, it would start to rise over the state minimum in 2020, reach $15 by 2023 and be indexed to inflation starting in 2024. For employers with 5 to 100 employees, the phase in would start in 2020 and reach $15 by July 1, 2025.

That is two years behind Minneapolis. For employers with 5 or fewer employees, the phase in would begin in 2020 and reach $15 by July 1, 2027.

St. Paul's proposal has an 85 percent wage exception for youth training and apprenticeship programs and a youth wage of 85 percent of the city small business minimum for their first 90 days of employment. There is also an exemption for professional baseball players who sign negotiated contracts, a loophole apparently intended for the St. Paul Saints players.

There is no exemption for tipped employees.

Those are elements of the initial proposal for the minimum wage ordinance, which gets its first public reading Wednesday. Details of the new ordinance will likely be hashed out in coming weeks.

6) If officials want a higher minimum wage, why not just set one, instead of making incremental increases?

A study by the Citizen's League found that many businesses don't have a lot of control over their revenues: health care providers may depend on reimbursement rates set by the Legislature or insurers, so a "phase in" period would allow employers to lobby for more revenue to pay higher wages, since they can't simply charge more. Others say customers would flee the sticker shock if they had to raise prices immediately to fund the wage increase all at once.

7) What is a tip credit?

A "tip credit" or "tip penalty" or "tip carve out" are all terms for an exemption to any wage higher than the state minimum. It would allow, for instance, restaurants to keep tipped employees at the state minimum and earn the rest of their compensation in tips while others are paid a city minimum, like $15 an hour.

Opponents of a tip credit say it leaves workers at the financial mercy of customers and managers. They claim that can make them subject to sexual harassment or retaliation. Customers may not tip, and that the income uncertainty should be shored up by a single minimum wage for everyone.

Supporters of a tip credit say they fear that full-service restaurant owners, for example, will try to recover the extra expense of a higher wage by instituting a mandatory tipping scheme or a "service charge" that will be paid to the establishment in lieu of tips. They say that compensation will wind up being far less than wait staff and bartenders, for instance, earn now and will effectively turn them into minimum wage employees.

The city of Minneapolis was sued by a group of opponents after the ordinance was passed. They included the Minnesota Chamber of Commerce, the Minnesota Recruiting and Staffing Association, the TwinWest Chamber of Commerce and the Graco corporation. All but Graco dropped the legal action in December of 2017, after a series of preliminary court decisions.

Graco lost its challenge in Hennepin County district court and is appealing the matter. It is awaiting scheduling for arguments before the Court of Appeals.

The Legislature also passed a bill that would have pre-empted local employment regulations, like higher minimum wages and sick time requirements.

The Republican-controlled Minnesota House and Senate both approved the measure in May 2017, only to have it vetoed by Gov. Mark Dayton, leaving the Minneapolis ordinance in place, and leaving the way clear for sick time and minimum wage legislation in St. Paul.

9) What are the arguments for and against local wage ordinance?

There are many. Here are a few.

Supporters of the plan say income disparities in Minnesota have become a crisis. St. Paul Mayor Melvin Carter said under the existing state minimum wage, a minimum wage worker could work full time all year and still earn $5,000 less than the federal poverty level.

Some even argue tipping is a cultural practice that should be abolished because of the power differential it can create between tippers and servers, who may feel the need to ignore harassment to either get good tips or be scheduled for lucrative service shifts.

Opponents say not all employers can cover the costs of the higher wage: home health care workers, for instance, are often paid by government reimbursement.

Others say low introductory wages help them bring in students and other low-skilled workers for their first job experience and that higher wages will keep them out of the job market. They also argue that local ordinances put them at a competitive disadvantage with lower-wage jurisdictions, sometimes as close as a restaurant across the street.

Tipped employees say the higher wage will push restaurants to adopt alternative ways to charge customers for higher labor costs, and that they won't ever make up for the value of tips.