PORTLAND, Maine — The local minimum wage hike to $10.10 per hour that Portland’s City Council passed Monday night will apply to tipped workers, as written, in apparent contradiction to what city officials intended.

The ordinance is set to take effect Jan. 1, 2016.

The outcome for tipped workers is the result of the somewhat confusing way service employees — including restaurant waitstaff — are allowed to be compensated in state law.

That is, they technically can get paid less than minimum wage. State law allows tips to count toward service employee wages, for anyone who regularly makes at least $30 per month in tips.

The formula allows employers to pay as little as $3.75 per hour, as long as tips make up the difference to bring a worker’s earnings to the state minimum wage of $7.50 per hour, before taxes.

In other words, tipped employees can get paid as little as half the state minimum in direct wages from their employer.

The apparent confusion in Portland’s ordinance passed Monday is that state law doesn’t set the minimum wage for service employees at $3.75, it sets out what they don’t get paid.

And what employees don’t get paid is called a “tip credit.” City staff and the Maine Department of Labor on Wednesday confirmed to the Bangor Daily News that a reading of the local ordinance in line with state law means restaurants will be subject to the new $10.10 minimum, from which they can subtract $3.75.

New service employee minimum wage: $6.35.

That’s if, including tips, the employee’s pay for a given period averages out to the new minimum of $10.10 per hour. If not, the employer would be required to make up the difference, as they are with the current $7.50 wage.

The Maine Department of Labor’s Center for Workforce Research and Information estimated based on 2014 workforce data that about 3 percent of Maine workers, or about 17,000 people, earn wages at or below the minimum wage, about 50 percent of whom are in food preparation and serving occupations.

Portland’s new minimum wage ordinance stands to have broader effects than just for food service employees, according to Maine Department of Labor spokeswoman Julie Rabinowitz.

“The tip credit is a big area where a lot of employers get in a lot of trouble and you have to have an enforcement piece to come in and investigate,” Rabinowitz said. “And that is the problem Portland is going to face. It can’t be inconvenient to enforce if it’s a right.”

The ordinance lays out that alleged violations can be reported to the city manager’s office who can order payment of back wages with penalties and that employees can sue an employer under the city law.

Mayor Michael Brennan said the city plans to hold to those avenues for handling complaints for the initial months before deciding whether it will need to hire additional staff to enforce the new regulation.

The city can’t have $10.10 and its direct tipped wage, too. The city cannot alone hold the minimum for tipped workers at $3.75 per hour and require a minimum wage at $10.10.

That’s based on the principle that a smaller level of government can’t create a law that’s less protective of workers than the next largest level of government.

The state minimum wage can be higher, however, than the federal (which it is) and the local minimum wage can be higher than the state’s (which happened Monday night).

The problem comes back to the tip credit. The credit reduces the hourly wage an employer pays for tipped jobs. And as a smaller level of government cannot set a minimum wage lower than the federal amount, it also can’t increase the tip credit.

Brennan said Wednesday that the city is consulting with its attorney on the interpretation of the ordinance and a possible way to modify it.

“It’s obviously a complicated issue, and we’re continuing to refine and discuss and address that issue going forward,” Brennan said, noting the ordinance does not go into effect until January.

Rabinowitz said the city’s options include exempting service workers entirely from the local minimum wage, holding it at the state level of $7.50 for tipped workers.

“It is possible they intended to backdoor a raise of those workers,” Rabinowitz said.

Brennan indicated Wednesday that the increase for tipped workers was not intended.

“We think there may be a fairly easy remedy of the situation,” Brennan said, but he said the city’s attorney was working on the issue and he could not elaborate on what a proposal to modify the ordinance would do or when any proposed change would go to the City Council.

A restaurant and hospitality industry representative is not happy but thinks the city had good intentions. Greg Dugal, head of the Maine Innkeepers Association, said the wage hike for tipped employees should not have come as a surprise to anyone on the council, though the result contradicted descriptions of the ordinance.

“It was very frustrating that they really had no idea what they were doing,” Dugal said. “I do believe that they were truly well-intentioned in their efforts and thought they were doing the right thing.”

Dugal said the increase that would about double the direct wage for service employers stands to pose tough challenges in restaurant businesses that he said typically operate on profit margins of 3 percent to 5 percent.

His organization helped to defeat the bill LD 403 before the Legislature’s Labor, Commerce, Research and Economic Development Committee earlier this year, which would have done away with the state’s tip credit, with restaurateurs and hoteliers offering redacted payroll statements as evidence of adequate pay for their tipped employees.

Dugal testified about the tip credit issue in Portland during the council meeting Monday night and said he had previously alerted city officials about how the tip credit would play into the ordinance.

“I’ve tried to get this point across and had several conversations with the mayor about this, and I feel kind of bad about this, that I wasn’t able to present this in a manner that they were able to understand,” Dugal said. “It isn’t an easy concept to grasp, and I think now they will realize their error.”

Darren Fishell

Darren is a Portland-based reporter for the Bangor Daily News writing about the Maine economy and business. He's interested in putting economic data in context and finding the stories behind the numbers.