Forcing Restaurants to Pay Servers More Will Cost Everyone

Eliminating the tip credit will raise prices for consumers and leave fewer jobs for servers.



You don't often hear someone arguing against a pay raise. But that's exactly what many servers and bartenders across the country are saying: They'd rather keep their current hourly wage than do without their tips.

Come June, servers in Washington, D.C., might be out of luck if Initiative 77—a proposal that aims to eliminate the tip credit—passes at the ballot box. Restaurant owners in the district currently pay waitstaff $3.33 an hour, well below the minimum wage, with the expectation that they will earn the rest (and sometimes much, much more) in tips. If gratuities fall short, existing law dictates that employers must make up the difference. Even so, the initiative would require D.C. restauranteurs to increase base pay to the prevailing $15 minimum wage.

Who doesn't love a 350 percent raise?

Sounds great on paper, but in the wise words of The Notorious B.I.G., "more money, more problems." While restaurant profit margins have grown in recent years, they are still notoriously small, settling around 6 percent on average. Forced to implement a steep hike in pay, employers inevitably respond by upping menu prices and whittling down staff.

Manhattan's Union Square Café, for instance, eliminated tipping in late 2015 to become a full-fledged "hospitality-included" establishment. To cover the cost of this, prices on the already-expensive menu rose by 25 percent. Servers are now compensated via a revenue-share system, which is a bummer, as business has declined.

If Initiative 77 passes on June 19, Washington restaurants may meet a similar fate. It's impossible to calculate the precise impact the law would have on prices in D.C., but imagine if they followed Union Square Café's tenuous lead. Want to grab your favorite $12 cocktail after a long day? That'll be $15 now. What about a $16 burger, fries, and Coke? That'll be closer to $20. And the $50 steak you get when you want to treat yourself? That might feel more like an investment than a splurge.

Consumers will have to loosen their purse strings to enjoy a halfway-decent meal. But servers and bartenders—the people this measure purports to help—stand to lose the most.

"Our jobs, should they still exist, will be completely changed for the worse," says Joshua Chaisson, vice president of the Restaurant Workers of America, an advocacy organization dedicated to preserving the tipped wage system across the country.

The data agree with him. States that upped the minimum wage in recent years have disproportionately disadvantaged low-wage workers, with employers forced to cut hours or eliminate those jobs entirely.

"We like working for tips. We earn a great living working for tips. The idea that we need to be saved or helped is completely disingenuous at best and a bold-faced lie at worst," says Chaisson, who earns $28 an hour on average.

To be fair, restaurants in D.C. would still include an option for tipping, unlike Union Square Café in New York. So those servers fortunate enough to stay employed would have the potential to earn gratuity on top of an increased wage. But not for long. Just ask Dan Swenson-Klatt, who owns a bakery in Minneapolis. He is also a member of RAISE, a restaurant organization that in his words yearns for "a restaurant industry that doesn't need to have tipping as a way to pay people."

"Removing that [tip] credit is their first line of importance in getting to no tips," he recently told MinnPost.

RAISE is an offshoot of the Restaurant Opportunities Centers United, which is spearheading the national fight against the tip credit. Although ROC did not respond for comment, Diana Ramirez, director for the D.C. region, has told the Washington Business Journal that the organization hopes its efforts have a "professionalizing and stabilizing" effect on restaurant work.

At the core of this argument is the idea that the tipped wage system lends itself to sexual harassment, as it gives sleazy patrons an opening to engage in a perverse form of blackmail. That may be true, but in the #MeToo era, restaurants can certainly take hardline stances against such behavior without slashing its employees' earnings.

As far as "stabilizing" restaurant work goes, the only uncertainty is just how much servers will exceed the minimum wage, not whether they'll meet it at all. Since employers must fill the gap if tips prove insufficient, waitstaff needn't fret if they're scheduled for a slow Wednesday lunch.

But without the tip credit, gratuities dwindle and menu prices balloon. Employees make less and consumers pay more. Everyone loses.