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The St. Paul-based restaurant chain that put itself at the center of an intense public debate over Minnesota’s new minimum wage is backing away from its policy of dipping into employee tips to help foot the cost of higher pay.

The Blue Plate chain announced Wednesday that management will resume paying a credit-card processing fee it had been passing along to its minimum-wage wait staff every time someone paid their tip with plastic. Blue Plate was among the first businesses in the state to announce a plan to confront new wage costs. A Stillwater restaurant is still dealing with controversy after it started adding a 35-cent minimum-wage “fee” to customers’ bills. Other businesses have discussed slimming down staffs or cutting hours to cover higher wages they say are cutting into their bottom lines.

Acknowledging community backlash, Blue Plate’s owners, David Burley and Stephanie Shimp, also said they will hike the wages of non-tipped employees like dishwashers, prep cooks and cleaning crews.

“We have always listened to our guests and our community,” Burley said in a statement. “We’ve reflected and decided to try a different approach that will give our communities a clear indicator of who we are as a business.”

Minnesota’s minimum wage, which had been one of the nation’s lowest, rose by 75 cents an hour on Aug. 1. In response, Blue Plate, whose eight restaurants include the Highland, Longfellow and Edina Grills, sent a memo to its employees alerting them that the new wage hike, coupled with rising health insurance costs, would cost the company $1.25 million. The 2 percent credit-card fee that the restaurant had been paying would come out of servers’ tips, the company said.

A number of restaurants already pass credit-card fees along to waiters and waitresses, arguing that tips can make servers some of the best-paid employees on staff. But to Blue Plate’s tipped employees, it looked like they were being asked to pay for their own raise.

Now management is pledging to immediately resume paying the credit-card fees.

“I think Blue Plate made a business decision that backfired on them: ‘Enjoy your increase in the minimum wage increase but we’re going to nick you on the back end,’ ” said Wade Luneburg, political director of UNITE HERE Minnesota, a union representing restaurant and hospitality industry workers. “It was a tacky policy. It is legal, but that probably doesn’t make it right.”

The company also announced that beginning Sept. 1, it will offer its non-tipped employees a higher wage of $9.69 per hour. Minnesota’s current minimum wage is now $8 an hour. It will increase to $9.50 by 2016.

The Minnesota Department of Labor estimates that 4.4 percent of the state’s workforce are paid minimum wage or less. Raising the state minimum wage to $9.50 an hour could mean better wages for an estimated 350,000 workers, or 14 percent of the workforce, according to an analysis by the Jobs Now Coalition.

Restaurants, in particular, have objected to the higher wages for tipped employees, who they say end up taking home considerably more than minimum wage once tips are counted. When the Legislature passed the minimum-wage hike, a provision to block restaurants from passing credit-card fees along to employees was included in the House version of the bill, but blocked by the Senate.

“A tip is something a customer is free to give to a server, and if they’re giving it to a server, they don’t expect the restaurant to come along and take a cut out of it. It should go to the person who provided that service,” said state Rep. Ryan Winkler, DFL-Golden Valley. “To take credit-card fees out of that is kind of a violation of trust between the customer and the server.”

There is no way of knowing how many local and national restaurants take credit-card processing fees out of employee tips, although at least one local chain, Parasole, acknowledged the practice several years ago.

Not every restaurant is backing away from steps to offset the cost of the minimum wage hike.

The River Oasis Cafe in Stillwater has been tacking a 35-cent “minimum wage fee” onto every bill. Despite widespread criticism of the charge, the fee remains in place and owner Craig Beemer said business is booming.

“These last two weeks have been the best we’ve ever had,” he told KTSP this week, adding that he never intended to make “some grand political statement.”

Jennifer Brooks • 612-673-4008