What is Initiative 77, and how does it affect restaurant workers?
Initiative 77, the "District of Columbia Minimum Wage Amendment Act of 2017," proposes to increase the tipped minimum wage to $15, which would eliminate the tip credit. This ballot initiative leaves it up to the DC voters to decide during the next election.
Cool. That's a good thing, right?
Requiring that all staff earn at least minimum wage, or $15/hour, is definitely a good thing. It's also already the law.
Both Federal and DC law require that all tipped employees make the minimum wage through a combination of their base wage plus tips, and strong protections are in place to ensure this happens. Employers must keep records documenting that employees’ earned tips plus base wage equals at least DC’s minimum wage. If those earnings ever fall below minimum wage the employer must “make up” the difference. The penalties for skirting this law are massive, and not a place that employers want to find themselves.
That said, DC restaurant owners rarely have to “make-up” to minimum wage because, DC tipped workers make well above minimum wage—typically $20-40/hour or more. So this initiative is an attempt to solve a problem that does not exist, at least in the DC market.
Huh. Then what’s the rationale for the ballot initiative? Who’s behind it?
Ballot Initiative #77 was proposed and championed by the Restaurant Opportunities Center (also known as “ROC”). ROC is a national organization that wants to eliminate the tipped wage system, citing that doing so would help workers at places like “Denny’s, IHOP and Applebee’s, largely.”
Problem is, national chain restaurants of the casual sit-down variety don’t really exist in DC. Of the more than 2,000 eating and drinking establishments in DC, only FOUR of them are those particular establishments. In DC, 96% of full-service restaurants are independently operated.
So, what would this mean for DC restaurant workers and owners?
This measure would dramatically change the way DC restaurants do business. Essentially, workers who are now well-paid with strong extra earning potential would move to a system in which they receive an hourly wage provided by their employer. Because very few restaurants could afford to pay workers $15/hr PLUS tips, many would compensate by switching to a flat “service charge.”
Tipped employees will almost certainly earn less in this model. To give one example, in San Francisco, owner Thad Vogler told CNN Money that his servers were making as much as $45 an hour with tips, a figure that fell as low as $20 in a no-tipping environment.
Other restaurants who eliminated the tip credit were forced to reduce hours, reduce staff size, increase menu prices, replace tipping with set hourly wages, and/or close their restaurant. Most notably, restauranteur Danny Meyer (Gramercy Tavern, Union Square Café, Shake Shack, etc) went to a “tip included” environment in his restaurants—only to see 40 percent of his long-time front-of-house staff leave, complaining that their earnings were down significantly.
Okay, what does that mean for tips? Would people still tip?
Typically, when this type of change has been implemented in other places, restaurants eliminate tipping, adding a service charge to a customer’s bill. But unlike with a tipping model, the service charge doesn’t automatically go to the server and other front-of-house staff, and instead will have to partially go to the restaurant to subsidize the increase in the base wage of all employees, which means tipped employees will have a lower take home pay.
What happened when this has been implemented elsewhere?
New York provides a recent example of the catastrophic results when this status quo is overturned. A state wage board appointed by the governor increased the base for tipped employees by more than 50 percent in 2015, regardless of whether they were already earning far more than minimum wage with tips included. The state’s restaurants were forced to give their highest-paid employees a raise – and raise prices, cut staff and business hours, or close their doors to adapt to the highest costs.
Census Bureau data show that New York lost over 500 restaurants in 2016, a stark reversal from years of increases. In New York City, full-service restaurant employment growth catered to roughly one percent, after growing at 6-7 percent on average in the previous five years.
What else should we know?
The current system works. In surveying tipped employees, owners and operators across the city, industry professionals want to preserve the tip system as it allows for a significantly higher income than an hourly wage, even if that hourly wage were to go to $15. So vote NO to ballot initiative #77!