Up for Debate in the $15 Minimum Wage Conversation Ignore the Overheated Rhetoric—Here Are Actual Policy Ideas Being Discussed Among Business Owners and Activists

This will likely be one of the most contentious issues. Kelly O

Right now in Seattle, activists and business leaders are not talking to each other; they're talking over each other. On one side, you have Seattle City Council member Kshama Sawant and the group 15 Now, who say there must be "no delay" and "no exceptions" to passing a $15-an-hour minimum wage, dismissing any measures to help small businesses get there as a needless "compromise." (Many in that camp contend that even discussing ways to accommodate small local companies amounts to allowing corporations to force workers into homelessness and starvation.) On the other side, you have critics responding to that zero-compromise rhetoric, claiming the wage hike would kill every adorable little business in town while turning it into a city of Olive Gardens. The owner of St. Clouds told the Seattle Times that a $15 minimum wage is "outlandish" and warned he may have to shutter his restaurant. Burke Shethar, who runs the Madrona Ale House across the street, intoned that the cost of burgers in Seattle could skyrocket to $18 a pop. And KIRO ran a story suggesting that customers will stop tipping their waiters.

So there's hyperbole on both sides.

Watching from the outside, you'd think this is a zero-sum game to pass the $15 minimum wage or kill it.

But that's not the real debate.

It's highly unlikely that Seattle will mandate a $15 minimum wage across the board right now, or, on the flip side, that Seattle will do nothing. The debate among lawmakers, union leaders, business owners, and activists is how we graduate to $15 an hour—a number that even the mayor supports. Now is the time to get serious about this conversation because, by all accounts, the city council or voters will make the final decision later this year.

To be fair, Sawant and activists with 15 Now have put their proposal on the table: They want $15 now. The business community lacks that concise message (it's hard to be more concise than five characters). But the businesspeople concerned about $15 an hour should stop promoting doom-and-gloom scenarios about what they oppose and start articulating the policy they support. And to be fair to them, many business owners support raising the minimum wage, but they are less united about how to do it. For example, some might support a six-year phase-in for locally based companies with fewer than 20 employees. Others might support no phase-in, but require that tips and health care be considered as part of the total wage.

The mayor's Income Inequality Advisory Committee and the council's Select Committee on Minimum Wage and Income Inequality are discussing the wonky details right now. I've spoken to staff in the mayor's office, the city council, three small-business owners, 15 Now, and leaders at key unions to ask what ideas are being batted around. I've listed some of the policy tools under consideration—I'm so sorry for saying policy tools—below. We're not endorsing these options. But we are saying the real debate is in these details, and that the next step is having a substantial discussion about them, not a black-and-white binary that makes people want to kill each other.

Getting this right in Seattle is in everyone's best interest. It could help set a new standard for a livable minimum wage, a standard that's workable for workers and boosts the entire economy.

Distinguishing Between Large and Small Businesses

This is among the top questions: How does Seattle ensure that corporate behemoths such as AMC Theatres, McDonald's, Office Max, and Target begin paying $15 immediately—because their economies of scale would allow them to absorb the added payroll—while ensuring that tiny coffee shops and the like don't drown? Or even if little businesses stay afloat, some ask, how can the law be implemented so small shops don't need to raise prices by 30 percent to break even, thereby disadvantaging them next to national chain stores that don't need to raise prices?

We're not discussing what an "allowance" or an "exemption" for a small business might be right here—just how to separate the big guys from the little fellas. Two dominant mechanisms to make the distinction are emerging. First, Seattle could distinguish the companies (or parent companies) by their gross revenues. For example, we could provide some allowances to businesses with revenues less than $250,000 or $1 million a year. (The city council has commissioned a report, due out in April, that studies the effects of a $15 wage and may provide clarity about how to differentiate between businesses large and small.) Or companies with a smaller staff could receive certain allowances—say, companies with 10 or fewer employees. Perhaps locally based chains with fewer than five stores could be given more time to implement the law than national chains with 500 (or 5,000) stores. As for nonprofits? Most agree that the giants, like the Bill & Melinda Gates Foundation, should pay their staff $15 an hour immediately. But a small nonprofit with six employees, which has wages set by past grants or endowments, may require a few years to recalibrate.

Phasing In the Wage

Of all the ways to fine-tune the minimum wage, most stakeholders seem to believe a final policy may involve phasing in the higher wage over three to six years. This would not be a compromise, as some put it, but standard practice for raising base wages. For example, the Fair Minimum Wage Act of 2007 had three steps from $5.15 an hour to $7.25. Gradually raising the wage each year, by $1.25 annually, for example, could reduce the shock to smaller companies, particularly those with loans contingent on business models that were based on the previous wage, and possibly to certain workers. For instance, many low-income workers qualify for social services, such as subsidized childcare or discount utilities, so phasing in a wage reduces the potential for a tidal wave of people suddenly leaving low-income brackets and no longer qualifying. Like all exemptions, phasing in could apply to smaller businesses and not larger ones.

Tipped Employees and Total Compensation

The idea here is that an employee's tips or other benefits could count toward their minimum wage, so that no matter what, each employee makes $15 an hour one way or another. For example, in the case of a waiter who makes more than $6 an hour in tips, which are required to be reported to the IRS, the business owner would not raise the waiter's base wage, because the minimum wage is already more than $9 an hour. However, if the waiter averaged less than $6 an hour in tips during their shift or pay period, the employer would have to make up the difference to equal $15 an hour. This "total compensation" standard could also apply to employees who are paid on commission, who receive quota-based pay, or who are compensated by the number of units they produce. But if this seems simple, it's not. Once you factor in retirement or health-care benefits, costs that vary widely from one company to the next, gauging the value of the benefit becomes almost impossible. Also, while many hospitality-business owners claim this total-compensation model is necessary, workers' unions will fight like the dickens to block it. After years in the legislature successfully lobbying against lower wages for tipped employees, labor will be loath to set such a precedent in the state's wealthiest city.

Total Pay

This is simple: Some don't think the total wage should be $15. Some think it should be, say, $12. While resistance to $15 an hour would be intense, to say the least, critics of $15 an hour should identify what wage they do support.

Collective Bargaining and Unions

Workers' associations that negotiate contracts with employers are typically locked into multiyear labor agreements. When the city council passed Seattle's paid-sick-leave law, it specified that the new rules would take effect for unions when they brokered their next contracts, thereby avoiding the need to reopen complicated negotiations. Likewise, the higher minimum could kick in when the next round of contracts are signed for each union.

Other Stuff

Lots of other ideas are on the table, many of which are considered nonstarters. For example: lower wages for employees who are "training" or are younger than 18 years old; exemptions from the city's B&O taxes, which are tiny, and arguably amount to a government wage subsidy; and exemption from sales taxes, which are largely earmarked already. Another idea involves the city raising fees for corporate businesses and handing the revenue to smaller companies to buoy wages, which is almost certain to be branded as "wealth redistribution."

Inflation, Enforcement, and Review

Seattle could shackle the new wage to inflation—to avoid these political fisticuffs in the future—while also creating a board that enforces the rules. Another board could study the impacts, which would have a twofold advantage: The data could let the city council know if the policy needs to be tweaked, while also providing an official record that the policy is (or is not) working. These reports could serve as the data-driven basis to demonstrate that other big cities can also raise the wage.