Washington D.C. overwhelmingly approved to eliminate the tipped minimum wage, with ballot Initiative 82 racking up just over 74% of the vote November 8. Under the initiative, D.C.’s current $5.35 hourly tipped wage will rise by a couple dollars per year across five years, until it reaches $16.10, the full minimum wage for non-tipped workers. Raises will begin in 2023.
D.C. joins eight states – Alaska, California, Hawaii, Minnesota, Montana, Nevada, Oregon or Washington State – that don’t have a tipped minimum wage. Elsewhere, employers can legally pay tipped workers below the $7.25-an-hour federal minimum, with a few exemptions. For example, if an employee spends more than 20% of their time engaging in duties that don’t produce tips – i.e., side work like rolling silverware or refilling condiments – then the employer must pay the full minimum wage rate. Any time a server doesn’t earn enough tips to equal at least the minimum hourly wage, employers must also pay the balance.
Subminimum wages vary by state, but currently 16 states pay the lowest federal minimum possible of $2.13 an hour.
Impact: For and against eliminating the tipped minimum wage
In D.C., voters drew a clear message – service workers shouldn’t have to rely solely on tips to earn a sustainable wage. But not everyone agrees on the impact that eliminating tipped wages could have. In Portland, Maine, voters rejected a similar ballot initiative, Question D, that would have raised the minimum wage to $18 over the next three years for both tipped and non-tipped workers. It’s an example of the widespread contention around the issue, evident not only among voters but also industry workers and advocacy groups.
Just months before Tuesday’s election, about a dozen Portland restaurant workers gathered to protest Question D. Some workers worry that eliminating the tip credit could actually lead to lower wages, and also cause unintended consequences, like a shift toward counter service.
Meanwhile, advocacy group the National Restaurant Association (NRA) believes the proposition could hurt restaurants in a time of economic recovery. In a statement released last Wednesday, the NRA said operators should have the choice to pick the payroll model that works best for their business, saying “tipping provides operators with the financial flexibility to hire more workers and control menu prices”.
“Voters in D.C. have been misled into supporting a pay cut for the tipped restaurant workers, and many restaurant owners will have to make drastic changes that will not work as proponents promised,” said Sean Kennedy, the NRA’s executive vice president for public policy. “In D.C. this means some operators will reduce their workforce, some will raise menu prices or add surcharges, and others will reduce shifts for their staff. Consumers will soon also see fewer restaurants opening in their communities because it just got a lot more difficult to run a restaurant here.”
Other groups, however, argue that eliminating the tipped minimum wage is a needed change and creates the potential to create a more equitable and sustainable industry. One of the biggest supporters and advocates over the years has been One Fair Wage (OFW), calling Tuesday night’s results in D.C. a “victory”.
“This is about making sure workers have a decent income, and at least a base wage, with tips on top,” said Alex Morash, OFW’s director of policy and communications. “It’s about economic stability and also basic fairness – every time we look at how restaurant workers are getting paid, we notice a pay gap, especially between women of color and white men. We’re just trying to make the industry as equitable as possible.”
Morash believes the proposition will help attract more workers back to the industry and that restaurants will adapt to the new wage structure.
“I remember when people talked about how the restaurant industry would be destroyed if we banned smoking [indoors], and the industry has done fine,” said Morash. “People like to go out to eat, will pay to go out to eat. And it’s about designing a business plan to fit the labor rules. That’s a normal part of being any business owner or entrepreneur.”
Some D.C. restaurant owners are already looking at moving to a service charge to cover the costs of the wage increase. Others made that shift well in advance of Initiative 82, seeing the demand for increased wages ignited during the pandemic.
“I thought this change was inevitable, which is why we made the decision to add a service charge and change to a professional wage model back in 2020”, said Kelly Phillips, founder of D.C. restaurant group Destination Unknown Restaurants. “It's going to be a challenge for many small businesses, but with wages going up incrementally, there is time to adapt and adjust pricing.”
At Phillips’ three restaurants, diners pay a 20% service charge. Part-time staff make at least $26 an hour, and full-time staff receive a salary between $56,000 and $70,000 a year. Phillips said the change has increased retention and helped save money on hiring, recruiting, and training.
“On average my team makes 15% more than our servers used to,” said Phillips. “We definitely have to be conservative with any hourly employees during the slower months, but overall everyone has more stability.”
Reported to the Washingtonian, D.C. restaurant owner Gina Chersevani said she's considering a service charge, but also potentially adopting self-service kiosks and employing less people..
“Is $16 an hour going to take a hit on my bottom line? Yeah. Can you survive? Sure, you’ll adapt. It’s not going to be ‘can the restaurants change their model?’ It’s going to be ‘how are you going to convince people that they should still tip employees for exceptional service?’ There’s where the problem happens,” Chersevani told the Washingtonian.
Where might the ballot initiative head next?
Across the country, many restaurants are already paying a base pay of $7.25 or higher and creating business models to support higher wages. For some, it was a choice made at the outset, and for others, it became a must for attracting workers during what’s been a deep labor shortage.
Yet supporters of eliminating the tipped minimum wage are doubtful it’ll take hold industry wide until there’s federal, or at least widespread, legislative policy behind it.
“I love to see our members in $2.13-an-hour states paying thriving wages, but I know it’s painful for them. They’re making a choice to be less profitable because they want to pay their employees real wages,” said Andrea Borgen Abdallah, community manager for RAISE: High Road Restaurants, an affiliate of OFW.“I don’t think our industry is united enough to set these standards on its own without the policy behind it.”
OFW said it’s currently talking to lawmakers in Maryland, and also collecting signatures to make eliminating the tipped minimum wage an initiative in Arizona and Ohio in 2024. If it makes it onto the ballot, it’ll be up to voters. Looking at the mixed turnouts in D.C. and Portland, the results may be hard to predict.
[Photo courtesy Yan Krukov]
