Current system misunderstood, provides state minimum wage when tips are below that amount
The National Restaurant Association responded to Washington, DC voting to eliminate the tipped wage. In the District of Columbia, voters have passed Initiative 82, doing away with the tipped wage.
Sean Kennedy, executive vice president for Public Policy at the National Restaurant Association, suggested that voters in DC had been misled into supporting the measure, which is effectively a pay cut for restaurant workers. They are already receiving a minimum wage as guaranteed by law—restaurants track and make up any deficit in tips for their employees.
Kennedy also noted that DC restaurants would have to make drastic changes. In addition, he said he was glad Portland, Maine, which voted on a similar measure, did not pass it.
“In DC 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.
Kennedy also notes that the tipped income system often comes under attack, because it’s not well-understood. According to the law, every tipped restaurant employee earns at least their state’s minimum wage.
He elaborated, “This amount is paid partly by the operator and partly by tips. Any time a server does not earn enough tips to equal at least the minimum hourly wage, by law the restaurant operator must pay the balance. National Restaurant Association research found that fullservice restaurant worker incomes average between $19.00 – $41.50 per hour with a median of $27.00 per hour, far surpassing the state minimum wages across the country.”
Restaurant operators should have the option to pick the payroll model that works best for their small business, including the federal tip credit, Kennedy noted. Restaurants are vulnerable due to their pre-tax margins of 3% to 5%. Based on the Association’s data, the elimination of tipping would shift more labor costs to operators, in some cases $10 to $13 per hour more. This comes at a time when restaurants have felt the impact of increased food prices, forcing them to increase menu prices or add surcharges to survive.
The Association has posted an analysis of the impact of eliminating the federal tip credit here.
Kennedy commented, “The elimination of the tip credit is a lose-lose for restaurant owners, tipped workers, and customers alike. The spread of these ballot initiatives will only serve to hurt restaurant workers and owners who chose restaurants because they want to support and engage with their communities. Forcing operators to change how they run their businesses and attacking the earning potential of tipped employees says to them that their career choices aren’t supported by their neighbors.”
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