(CMR) With customers in the service industry unhappy about supplementing low wages they believe businesses should pay, the Minimum Wage Advisory Committee (MWAC) has proposed and agreed to retain the gratuity subsidy of 25 percent of the minimum wage with the condition that this subsidy be phased out over several years.
In a recent report published this week, the committee proposed a minimum wage of $8.75 for the Cayman Islands.
In its report, the committee stated that the subsidy could be reduced from 25 percent to 20 percent, to 15 percent, to 10 percent, and ultimately to 0 percent.
According to the report, the minimum wage and gratuity contribution were among the most discussed and controversial topics the Minimum Wage Advisory Committee considered when increasing the minimum wage.
Counting gratuities towards an employee’s income is a long-established business model in service-centric businesses like restaurants and accommodations. It has been a universal practice in North America, the Caribbean and the Cayman Islands for over 30 years.
According to the MWAC, the gratuity contribution compensation model is proven effective for businesses and service employees alike as it has significant earning potential for employees, achieves and rewards quality of service, incentivizes employees to work (evenings, holidays, and weekends), fosters teamwork to provide a better-quality guest experience and is pensionable. Also, some major banks will consider anywhere from 50 to 100 percent of gratuities toward loan calculations, with proof.
The committee said it noted the case advocated by the Cayman Islands Tourism Association and others on behalf of the hospitality industry. However, when a vote by secret ballot was first taken on 22 August on whether the National Minimum wage should be paid partly with gratuities, the majority of 8 members voted “no,” and 7 members voted “yes, with options.”
With such a narrow margin and no consensus, and recognizing the heavy reliance on this subsidy, the committee said it wrestled with the issue, as its discontinuation could be disruptive to the sector and have negative and possible unintended consequences within the service sector, especially restaurants.
Members of the committee also expressed the view that given the complaints surrounding the distribution of gratuities, the fundamental underlying issue might be more a matter of enforcement and compliance. The committee noted that the Government had recently agreed to establish a Task Force to examine and report on the current gratuities’ distribution schemes in operation.
Members of the committee suggested that another way to find a compromise with gratuity subsidy was by splitting the service sector into two seasons, the high season covering 5 months and the low season covering 7 months, with a scenario that the subsidy of 25 percent could be reduced to 12.5 percent during the high season and increased to a larger subsidy during the low season. This proposal failed to gain any support.
A second round of votes was taken on 12 September, and a bare majority of 8 members voted to retain the 25 percent discount for service employees to be phased out over five years commencing in July 2025, the report stated.
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