Lawmakers should learn from DC’s harmful tipping experiment

Original Article:

  • Author: Rebekah Paxton

  • Publication Date: July 2023

  • Newspaper: Washington Examiner

On Saturday, the District of Columbia sees its second wage hike for tipped restaurant workers this year — going up to $8 per hour after rising to $6 per hour just two months ago. Yet even in its early stages, the city’s restaurants and employees are already feeling harsh consequences.

Until this year, the district’s tip credit allowed employers to count service employees’ tips toward the regular minimum wage requirement. This system enabled servers and bartenders to earn well above Washington, D.C.’s minimum wage — reporting an average earnings rate of  $26.54 per hour with tips. Restaurants were able to offer lucrative earning opportunities while navigating the narrow profit margins characteristic of the restaurant industry.

A recent Employment Policies Institute survey of more than 100 local restaurant owners ahead of the new hikes provided a glimpse of how the law is already harming the district’s restaurants and their employees.

To accommodate the steep rise in labor costs without scaring off guests with sharp price hikes, nearly three-quarters of restaurant owners said the law will force them to cut the number of tipped staff at their restaurants, as well as reduce remaining employees’ scheduled hours. Others indicated they may have to automate certain tasks, or even introduce more self-service options.

Diners around the district have already experienced a shift toward restaurants applying service charges to their bills. One estimate on Reddit finds that over 170 restaurants in the district have adopted such charges. In the EPI survey, 70% of owners say they will have to follow suit.

Tipped employees often oppose service charges. While often designated by restaurants to support higher wages for service staff, service charges are not tips. Unlike tips, which go directly from the customer to the individual server, service charges are allocated by the restaurant.

Many owners are reluctant to add these charges but don’t see viable alternatives, given the sharp rise in menu prices that Initiative 82 will otherwise require.

If all else fails, diners may see some of their favorite restaurants forced to close. Nearly one-third of surveyed restaurants indicated they would have to shut down over the course of the next four years as wages continue to rise.

This new research adds the district to a growing list of cautionary tales when governments tinker with tip credits.

Studies from Cornell University and the U.S. Census Bureau have found as state tipped wages rise, tip percentages left at restaurants decline , and employees’ tip income falls . This has been the unfortunate case for employees in flat wage states, such as California and Washington, where tip percentages are the lowest in the nation compared with states that protect tip credits and the tipping system.

Non-tip credit areas have also experienced stagnating restaurant employment growth. Even before the devastating effects of the pandemic on restaurants, high-wage, no-tip credit markets such as San Francisco, New York City, and Portland, Oregon, went from booming annual restaurant employment growth to losing jobs in the industry.

country to leave the tip credit alone. Exporting tip credit elimination nationwide could trigger these consequences on a grand scale. That’s why tipped restaurant employees around the country have been vocally opposed to tip credit elimination, including in Maine, New Mexico, and Maryland.

The push to raise minimum wages across the country as high as $17 or more is irresponsible as is. Lawmakers should avoid doubling the pain for restaurants across the country by eliminating a tip credit system that works.