July 25, 2023
National Restaurant Association Statement on the Introduction of the Raise the Wage Act of 2023
Washington, D.C. – Today, Sean Kennedy, executive vice president of Public Affairs for the National Restaurant Association released the following statement on the introduction of the “Raise the Wage Act of 2023,” legislation that would increase the federal minimum wage from the current $7.25 per hour to $17 per hour and eliminate the tip credit over five years:
“More than 15 million people choose to work in restaurants, many of them professionals who have built strong, long-term careers. In recent years, the market demand for both experienced and entry-level restaurant workers has pushed their average earnings from $15.06 in May 2019 to $19.67 in May 2023 – a 31% percentage point growth, compared to 20% in overall private sector. This wage growth has come at the same time that wholesale food prices shot up; rent, insurance, credit card fees and debt climbed; and consumers started to second-guess their spending. It’s been a challenge for restaurant operators to balance all these increases with only a 3-5% pre-tax margin to pull from, but they remain optimistic about the future.
“The National Restaurant Association and our members welcome a conversation about how additional wage changes fit into this reality. We look forward to discussing with Congress the unique challenges of restaurant operators and how to plan changes, so they don’t threaten business viability or damage the economies of the communities where restaurants drive job creation and tax growth.
“But eliminating the tip credit as a compensation model is a non-starter. This would have the perverse effect of lowering the take-home pay for countless workers who have tipped restaurant jobs. Their median income is $27 an hour, far above the proposed changes, so we’ll fight for them to keep the current system of tipping and that high earning potential.
“The restaurant industry is one of opportunity with jobs open to all. We hope that Congress is willing to talk with us to better understand the current condition of restaurant employers and the thousands of restaurant workers in their states so they can better understand how they would be impacted by these proposed changes.”
Background on the elimination of the tip credit:
Every restaurant worker must make the prevailing minimum wage for every hour they work. (Some states or cities have higher minimum wages than the federal minimum wage and if that’s the case, the worker must make the higher local minimum wage for every hour worked.) For a tipped restaurant worker that means that the restaurant operator is paying a part of that hourly wage in what is called a “cash wage,” and their tips must make up the rest. If their tips do not bring them up to the hourly minimum wage for every hour worked, the operator must pay the difference to get them to the minimum wage.
When the tipped wage is eliminated, restaurant operators become responsible for the difference between the current cash wage and the prevailing hourly minimum wage. This means, should the tip wage be eliminated, operators using the tip credit would go from paying $2.13/hour to $17.00/hour – an increase of $14.87/hour for the operator to bear alone.
Background on the unique operating perspective of restaurants:
Restaurants can’t easily absorb or pass on cost increases. The typical small business restaurant run on a 3-5% pre-tax margin. Food and labor costs are the two most significant line items for a restaurant, each accounting for approximately 33 cents of every dollar in sales. Other expenses – typically non-controllable costs like credit card swipe fees and occupancy costs – generally represent about 29% of sales. For the vast majority of restaurant operators, these three categories increased significantly in recent years. It’s also worth noting that many small business restaurants had to take on new debt during the pandemic to stay afloat during shutdowns and these loans are adding to the pressure on their budgets.
According to analysis by the National Restaurant Association, in 2019, pre-tax income represented approximately 5% of sales for a typical restaurant. For a restaurant with annual sales of $900,000, this translated to pre-tax income of $45,000. If a restaurant today is making total sales equal to their 2019 levels, then they are suffering a pre-tax loss of -12.3%.
“More than 15 million people choose to work in restaurants, many of them professionals who have built strong, long-term careers. In recent years, the market demand for both experienced and entry-level restaurant workers has pushed their average earnings from $15.06 in May 2019 to $19.67 in May 2023 – a 31% percentage point growth, compared to 20% in overall private sector. This wage growth has come at the same time that wholesale food prices shot up; rent, insurance, credit card fees and debt climbed; and consumers started to second-guess their spending. It’s been a challenge for restaurant operators to balance all these increases with only a 3-5% pre-tax margin to pull from, but they remain optimistic about the future.
“The National Restaurant Association and our members welcome a conversation about how additional wage changes fit into this reality. We look forward to discussing with Congress the unique challenges of restaurant operators and how to plan changes, so they don’t threaten business viability or damage the economies of the communities where restaurants drive job creation and tax growth.
“But eliminating the tip credit as a compensation model is a non-starter. This would have the perverse effect of lowering the take-home pay for countless workers who have tipped restaurant jobs. Their median income is $27 an hour, far above the proposed changes, so we’ll fight for them to keep the current system of tipping and that high earning potential.
“The restaurant industry is one of opportunity with jobs open to all. We hope that Congress is willing to talk with us to better understand the current condition of restaurant employers and the thousands of restaurant workers in their states so they can better understand how they would be impacted by these proposed changes.”
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Background on the elimination of the tip credit:
Every restaurant worker must make the prevailing minimum wage for every hour they work. (Some states or cities have higher minimum wages than the federal minimum wage and if that’s the case, the worker must make the higher local minimum wage for every hour worked.) For a tipped restaurant worker that means that the restaurant operator is paying a part of that hourly wage in what is called a “cash wage,” and their tips must make up the rest. If their tips do not bring them up to the hourly minimum wage for every hour worked, the operator must pay the difference to get them to the minimum wage.
When the tipped wage is eliminated, restaurant operators become responsible for the difference between the current cash wage and the prevailing hourly minimum wage. This means, should the tip wage be eliminated, operators using the tip credit would go from paying $2.13/hour to $17.00/hour – an increase of $14.87/hour for the operator to bear alone.
Background on the unique operating perspective of restaurants:
Restaurants can’t easily absorb or pass on cost increases. The typical small business restaurant run on a 3-5% pre-tax margin. Food and labor costs are the two most significant line items for a restaurant, each accounting for approximately 33 cents of every dollar in sales. Other expenses – typically non-controllable costs like credit card swipe fees and occupancy costs – generally represent about 29% of sales. For the vast majority of restaurant operators, these three categories increased significantly in recent years. It’s also worth noting that many small business restaurants had to take on new debt during the pandemic to stay afloat during shutdowns and these loans are adding to the pressure on their budgets.
According to analysis by the National Restaurant Association, in 2019, pre-tax income represented approximately 5% of sales for a typical restaurant. For a restaurant with annual sales of $900,000, this translated to pre-tax income of $45,000. If a restaurant today is making total sales equal to their 2019 levels, then they are suffering a pre-tax loss of -12.3%.
About the National Restaurant Association
Founded in 1919, the National Restaurant Association is the leading business association for the restaurant industry, which comprises more than 1 million restaurant and foodservice outlets and a workforce of 15.5 million employees. Together with 52 State Associations, we are a network of professional organizations dedicated to serving every restaurant through advocacy, education, and food safety. We sponsor the industry's largest trade show (National Restaurant Association Show); leading food safety training and certification program (ServSafe); unique career-building high school program (the NRAEF's ProStart). For more information, visit Restaurant.org and find @WeRRestaurants on Twitter, Facebook and YouTube.