Rising minimum wages have seen a significant amount of spotlight entering the new year. But wage floors for tipped restaurant employees are also going up in 2022. This year, twenty states are raising their tipped minimum wages along with 56 localities.
Notably, efforts backed by One Fair Wage, an affiliate nonprofit of the controversial Restaurant Opportunities Center, seek to add Washington, DC, Michigan, and Massachusetts to the list of states that don’t allow employers to take any tip credit for workers earning substantial tip income. (Currently on that list: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington.)
The problem? One Fair Wage’s go-to promise that eliminating the tip credit will simply give restaurant servers and bartenders a full minimum wage “with tips on top” is an empty one – opposed by many restaurant workers for actually reducing their take home pay once such a measure is implemented.
Severe increases in tipped minimum wages (including elimination of tip credits) affect all restaurants differently, but require many to change their model to accommodate higher labor costs.
- To adapt to the higher wage bill caused by tipped minimum wage increases, many restaurants have no choice but to pass costs on to customers. This may happen in different ways, including outright menu price hikes, or by adding a service charge to customers’ bills.
- These changes may affect customers’ price sensitivity to eating at restaurants, and could cause customers to limit their restaurant spending or patronage. Some restaurants and tipped employees may be able to weather these changes, but many may not be able to afford to lose the revenue.
- Polling provides some evidence for this: a survey of 3,000 restaurant consumers found that 81 percent of restaurant-goers prefer the traditional tipping method over built-in service charges.
- Economic research also shows evidence that customers’ price sensitivity to rising costs can negatively affect restaurants: A Harvard Business School study found that a $1 increase in tipped minimum wages in San Francisco increased the likelihood of restaurant closure by 14%.
How have tipped restaurant employees reacted to the flat-wage alternative? Many tipped restaurant employees reject the One Fair Wage lie.
- If restaurants don’t close altogether due to upward wage pressures, tipped employees have historically felt the burn of tipped minimum wage hikes, and actively oppose switching to a standard minimum wage model. A Cornell University study finds that tip percentages fall as minimum wages for tipped employees are increased.
- As a result, tipped restaurant employees may experience a net loss in total earned income, due to lost tips that exceed the extra hourly wages they receive.
- Danny Meyer ended up reversing his regular minimum wage with no tipping policy in his New York City restaurants after losing 40% of long-time staff over lost tip earnings. One of his employees reported she lost roughly $10,000 in annual earnings when Meyer switched to a flat hourly wage system.
- Tom Colicchio, another One Fair Wage advocate, also reversed his flat hourly wage policy for previously tipped employees, reflecting later that “servers would have to make $55 per hour” to make up for tips lost under the new policy.
- In a recent Washington Post interview, Meyer also noted that raising prices to account for the increased labor costs was unsustainable for both employees and customers: “If you’re used to paying $26 for the roast chicken at Union Square Cafe…we really should have been charging you $42…”
- Other notable experiments across the country to eliminate the tip credit and tipping were also reversed due to staff dissatisfaction, including in San Francisco-based Zuni Cafe, where tipped employees leaked their concerns about losing income to the media when the restaurant announced they would move to a service fee model.
Tipped restaurant employees know their jobs and their customers better than union-propelled activists, and know how customers have reacted to price changes after tipped minimum wage hikes are implemented. As a result, tipped restaurant employees have led the charge in Maine, New York, Virginia, and New Mexico to save the traditional tipping system that works for them.
In fact, a ballot measure similar to the proposed Initiative 82 in Washington DC this year was already tried and repealed in 2018. While voters approved it, restaurant employees pushed the District’s City Council to reconsider the measure that would actually reduce their earnings, and it was ultimately overturned.
The tipping system as it currently stands provides job opportunities, upward mobility, and substantial income for entry-level and career employees alike. Upending it has negatively impacted these things that draw people to the restaurant industry, causing job loss, income loss, and restaurant closure.
Voters and lawmakers in Washington, DC, Michigan, and Massachusetts should steer clear of One Fair Wage’s empty promise about tips on top.