Not surprisingly, whenever minimum wage is raised, small businesses struggle to off-set the added costs imposed. The issue is currently playing out now in cities like Seattle and SeaTac, where minimum wage has been raised to an absurd $15 per hour. And apparently some businesses in those communities have begun adding surcharges on bills to offset higher labor costs. This has, in turn, prompted the Washington Attorney General’s office to release guidance—directed at businesses with tipped employees—outlining how and when they may add “surcharges” to bills.
Apparently the Attorney General’s concern was over the possibility of deceptive practices. So before adding a “surcharge” on a customer’s bill, it’s probably prudent to review the guidance to be sure that you are not running afoul of Washington’s Consumer Protection Act.
Probably the most important takeaway is that if you are adding surcharges to bills for the ostensible purpose of offsetting the costs of complying with heightened minimum wage requirements, then monies collected through the surcharge must actually go toward paying wages.
But, interestingly, the Surcharge Guidance
has sparked some degree of controversy, as one group has raised questions
as to whether or not the Guidance inappropriately discourages businesses from exercising their First Amendment rights to protest minimum wage hikes. The controversial line from the Guidance provides that: “any surcharge applied at the discretion of the business may not be characterized as a ‘tax’ or in any other way that implies it is a direct government mandate.”
The concern was that this language might be construed as prohibiting businesses from telling customers that they are adding surcharges in response to local minimum wage hikes. In NFIB’s view, a more appropriate interpretation would be to understand the Guidance as allowing businesses to tell customers that they are adding surcharges to help offset the costs of complying with new minimum wage laws and prohibiting businesses from telling customers the business is legally required to add the surcharge. In any event, we were concerned that the Guidance may have a chilling effect on small business free speech rights. For this reason, we sent the Attorney General a letter asking for clarification.
His office responded promptly, affirming our interpretation.
This is good news. It means that small business owners need not be deterred from either adding surcharges, or from communicating the reason for adding surcharges (i.e. to offset added costs imposed by minimum wage hikes). It’s just essential to remember that you cannot say that the surcharge is mandated by law. And that’s true because there is no government mandate to add a surcharge. The surcharge is simply one legitimate choice that businesses might make in response to minimum wage hikes.
The reality is that when minimum wage is raised, businesses must make difficult choices. They must either find a way to eat those added costs, which may be difficult or impossible in many cases—at least for companies that wish to remain in business. Another option is to raise prices across the board. And, again, adding a surcharge remains a legitimate option in Washington as well. But the important thing to remember is that, when adding a surcharge or raising prices, businesses are free to educate the public on the adverse effects of minimum wage hikes. And perhaps that’s a message that consumers need to hear.
So in summation, it’s perfectly acceptable to include a message, along these lines, on your customer’s bill: “A surcharge has been added to your bill to off-set the City’s $15 minimum wage.” It’s impermissible to say: “The City’s $15 minimum wage law requires us to add a surcharge to your bill.” And remember, it’s illegal to divert money collected through a minimum surcharge toward anything other than wages.