Mrs. Walsh's contention was that the ideal situation would be to treat tips as self-employment income. This is the National Restaurant Association's position as well. The banquet waiter whose tip is charged as part of the bill gets social security protection based on his tip income as well as his wages. However, in this case, the employer actually knows the true amount of the tip because he charges for the tip, collects the tip, and pays the tip over to this waiter. In this case the employer has knowledge of and control of the tip. He even takes custody of the tip moneys. None of this would be possible under section 313 and without such control the employer would be completely subject to his employees' wishes. Another way to base social security benefits on tip income as well as wages is reflected in a contract now in effect between the Hotel Association of New York City, Inc., and the New York Hotel Trade Council AFL-CIO. Approved after an appeal by the Social Security Administration, effective June 1, 1963, it provides among other things that * all tipped employees except those in banquet departments shall be deemed, for each weekly payroll period after said date, to have certified and accounted to their respective employers for an amount of gratuities that they have received which amount when added to their weekly gross salary shall equal $70; and the respective employer shall pay and make deductions for Federal social security tax purposes based upon such sum of $70 per week for each of these employees. Still a third way to reach this objective under existing law is by agreement between employer and employee. Under such an agreement, accurate accounting to the employer is required. This method is much like section 313 except that it is based on voluntariness. It is little used in the restaurant industry, an indication that neither employers nor employees in our industry want it. The National Restaurant Association wants tips to count for all purposes. We share the desires of the union leaders to provide social security protection based on tip income as well as wages. We disagree with their contention that tips should be treated as wages. We submit that tips are other income and more nearly like self-employment income. Tips are unique, a hybrid sort of income. The Social Security Administration has difficulty finding the waiter to be engaged in a trade or business, a requirement for the self-employment approach. It is unfortunate that our law has been narrowed down to but two concepts in this area: wages and self-employment income. True, the waiter is not completely self-employed, an independent contractor, because he does work at our direction and under our control. However, insofar as his tip income is concerned, it possesses more indicia of self-employment income than of wages. It is truly the product of his personal effort. True, he has no real capital investment in his trade or business but then neither does a court reporter. Existing law concerning social security coverage of court reporters is worthy of our attention because the analogy to the waiter is quite close insofar as the sale of transcripts is concerned. The employer of the State or municipal court reporter withholds from his salary or wage both income and social security taxes. This is like the waiter with his basic wage. Now the court reporter is allowed to sell transcripts to the public and this is like the waiter who receives tips from his customers. The court reporter makes his own returns on his income from the sale of transcripts and pays such taxes as may be due if he were self-employed. The waiter should do likewise in the case of tip income. Indeed he does so now in the case of income taxes. Treating tips as self-employment income would not be expensive to waiters and waitresses. The annual cost of this approach to a waiter working 40 hours per week and averaging $1 per hour in tips would be $45.24. This is less than $1 per week. For this he would be relieved of reporting to his employer and his social security benefits would be identical with what he would receive under section 313. Tips are not wages. Tip income is another kind of income. Tips are really like dividends on stock or rentals from leases of property or interest on a savings account. It was proposed to the Congress in 1962 that dividends, rentals, and interest be withheld upon for income tax purposes. This was rejected by the Congress in the Revenue Act of 1962 because such other income was not reasonably related to wages or the employment relationship and because the scheme was unwieldy and unworkable. The same is true of the proposals of section 313. We believe that tip income is such other income as to be self-employment income and should be so recognized and treated for social security and Federal income tax purposes. We submit that the selfemployment approach provides the only reasonable, practical, and equitable solution; fair to the employer and employee alike, to the problem of basing social security benefits on tip income. If the committee does not agree to this formula and approach to the problem, we urge that section 313 be eliminated from the bill as unworkable and unduly burdensome upon employer and employee alike. There are solutions for this problem under existing law. This being true, it would be a great pity to deprive a great industry of 13 percent of its profit when the law now provides adequate remedies. Thank you, Mr. Chairman. Senator RIBICOFF. Thank you very much, Mr. Scott. STATEMENT OF JULIA ALGASE, LEGISLATIVE COUNSEL, REPRE- Miss ALGASE. My name is Julia Algase. I am the legislative counsel and assistant to Mr. Jay Rubin, the president of the New York Hotel & Motel Trades Council which was just referred to in the statement preceding mine. The council represents 35,000 hotel and motel workers in New York City under collective bargaining agreement with the Hotel Associa tion of the City of New York. Present with me today is Mr. Vangel Kamaras, a vice president of local 6, one of our constituent unions, and chairman of the Social Security and Tip Committee of the Hotel Trades Council, as well as other representatives, who are a la carte waiters in the New York City hotels representing the large number of tip workers that we represent among the 30,000. The tip employees we represent are waiters, waitresses, bellmen, baggagemen, and doormen. I would like to add in addition, Senator Ribicoff, if I may, that on my right is Mr. Sarni Zucca, the secretary of the Dining Room Employees Union, Local 1 in New York City. On my left is Mr. Fred Ferrara, who is the president of Local 11 of Dining Room Workers. Yesterday I was present when Mr. Cyrus Anderson, for the Hotel & Restaurant Employees International Union presented in advance the answers to the arguments that he anticipated from both the hotel association, the American Hotel Association, and the Restaurant Association. We come here to ask you to retain intact section 313 of H.R. 6675, the section which defines tips and wages and provides a reporting method for that purpose. As you have heard this proposal has been opposed by the American Hotel Association and by the Restaurant Association. We are told as excuse for opposition either that the program will be difficult to administer or that the employees involved do not want the coverage. For instance, you were told this morning that Miss Jackie Walsh of California local said way back in 1957 that she wished there were a way of covering it. Our employer opposition has apparently had to go back that far in order to find an expression of employee opposition which I think is a rather weak approach to a very serious matter. Now, the hotel association, and as far as I know, I confine myself to the hotel association and by that I mean the American Hotel Association has conducted a vigorous campaign directed to the employees involved, a campaign which in effect says, "You don't want this coverage. Tell your representative that you don't want it." And we offer here as part of the record an example of the literature. It is veiled and confusing. In essence it leaves the employee with this thought: "If tips coverage is legislated, you will have to pay income taxes to the Government which you may be getting away with now." I heard the representative of the employer say something to the effect a few minutes ago that whenever we discussed this with the employees or whenever we explain to them what it is they are against the tips coverage. If this is the kind of explanation it is not difficult to see why there is employee mail which may be in opposition. I will read you an example of it. Tax on tips poses some real problems for employees- They don't say it imposes taxes on employers as they have been telling you. Very few know all its burdens. There are very severe penalties for violations. We don't think many employees would want it if they knew all about it. Then they go on to explain the reporting method, and the reference you see here is to section 205 of the old bill but still it is intact in this bill the reference is the same. What they say is that "You certainly have an interest in this matter. You may want to oppose the section. You might want to write to your Congressmen. We suggest that you contact your Congressmen now." To me it is quite clear that the employers don't want it, and that their time, many of those profits they may have been having must have been spent in persuading the employee that he doesn't want it. Employer oppossition is actually based regardless of the excuse on the fact that this coverage is going to cost them more money in social security taxes, and they would like to keep that amount down as low as possible, and this was borne out by the figures that were presented to you by the Restaurant Association. Accordingly, we hear such statements as, "We are quite in sympathy but we think that this is a self-employment matter." Tip workers are not self-employed. They are employees, and, therefore, must be treated as such in all areas, including social security. Imagine the implications behind the self-employment, Senator Ribicoff. I see three, no unemployment insurance which all tip workers have. No workmen's compensation which all tip workers have. No union organizations which a large number of tip workers have. These are only some of the implications of the idea of self-employment for tipped workers. Now, a self-employed man sets up a little business somewhere. He doesn't go into a place where he has to sign a contract, where he has to obey the rules of the establishment. Where he has to wear their uniform, where they must agree to certain safety rules for them, where they have to pay unemployment insurance taxes, and have the right to hire and fire. So, that this is-I don't quite know how to describe it, it is a drowning man clutching at a straw to think of this in terms of self-employment. Now, not all hotel employers have the backward views on this problem that the opposition would indicate our own experience in New York City is an example of far-sighted thinking on the part of the New York City Hotel Association, which does feel a responsibility in this area. Upon the presentation by our union in collective bargaining negotiations of the problem of social security coverage in this tipped area. both sides reached an agreement recognizing that tips are part of wages, and that tipped workers covered by our collective bargaining agreement are deemed to earn at least $70 a week in cash wages and tips, and since this section of our contract was quoted a few minutes ago by the representative of the restaurant association it must have occurred to you, Senator, why were banquet waiters excluded? The banquet waiters were excluded because they are covered. They are covered under the regulations of the Social Security Administration. So we haven't had any problem of asking for tips coverage of banquet waiters. Accordingly the employers involved deducted the employee's share for social security and for withholding, and contributed their own share for social security. Our agreement has been recognized by the Social Security Administration, and the Internal Revenue Department, as of June 1, 1963, the effective date of the agreement. Tipped workers covered by our collective bargaining agreement have a certain amount of tip coverage under social security. We are offering a copy of the approval for your record. I think that the restaurant association offered this absolutely leading type of agreement as a substitute for legislation. This happens to be one of the most unique things that has ever happened but it is not a substitute for legislation. It isn't the first time that a labor union has led the way toward a revision of social problems which will then be followed by legislation, which will cover the entire country and give to the unorganized the benefit of what the union has been able to do by collective bargaining. There are people all over the country here who are not organized, unfortunately, and who do need this help, not only here, but in the minimum wage area as well. Now, the correction of a long-standing inequity is at hand in section 313 of this bill. Well, since the restaurant association went as far back as 1957, we will take the privilege of going back to 1948, and say that the coverage of tips for social security Senator RIBICOFF. I assume most of these things you are talking. about are not in your prepared statement? Miss ALGASE. Yes. Senator RIBICOFF. Fine, you seem to be wandering around. Senator RIBICOFF. Just that time is running out. Miss ALGASE. I am reading now the rest of what is in Senator RIBICOFF. I mean you can interpolate, it is perfectly all right. I thought you would make your written statement part of the record as read and you can interpolate accordingly. Miss ALGASE. I would be perfectly happy in the interest of time to skip the balance of page 3 of my statement which refers to Senator Lehman's interest in this behalf and some of his quotes particularly in relation to the question of employment of tipped workers, because he said, "These people are required to include moneys received in this way in their income tax returns. I can think of no reason why they should not be entitled to have these moneys accounted for social security." Now, 9 years later the situation is still uncorrected. The tipped worker presently maintaining a reasonably good standard of living on the basis of wages and tips is reduced at the time of old age to the lowest rung of the social security ladder, and we offer for your record an analysis of the difference in these benefits which is based on our own experience. I have a copy of that for the record. Senator RIBICOrr. That will be placed in the record with your prepared statement at the end of your testimony. Miss ALGASE. Yes. From this it appears that social security benefits without tips inclusion would be $73 a month whereas if it were based on only $70 a week the benefits would be $116. But this is for our section of the community which has the benefit of a contract, as I have pointed out. The correction of the abuses in your hands and we, 35,000 of us, and more believe that you will correct it by approving section 313. May 47-140-65-pt. 2--32 |