November 09, 2022

Voter Elimination of the Tip Credit Forces Destructive Changes for Restaurant Operators and Workers

Current tipping system increases earning potential for tipped workers and allows operators to staff at levels needed for exceptional hospitality
Washington, D.C. – Today, Sean Kennedy, executive vice president for Public Policy at the National Restaurant Association released this statement on the tip credit, following a vote in the District of Columbia to force the elimination of the tipped wage, upending the current business model of most table service restaurants there, while voters in Portland, Maine rejected a similar proposition:

“Voters in D.C. have been misled into supporting a pay cut for the tipped restaurant workers, and many restaurant owners will have to make drastic changes that will not work as proponents promised. We’re pleased voters in Portland didn’t make the same choice.

“In D.C. 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. 

"
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.”

The tipped income system often comes under fire because there is widespread misunderstanding about how it works.

Every tipped restaurant employee earns at least their state’s minimum wage.

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.

Tipping provides operators with the financial flexibility to hire more workers and control menu prices in a challenging economic environment while simultaneously increasing servers’ earning potential. Operators and tipped employees have worked to preserve this system of tipping because it is mutually beneficial.

Restaurant operators should have the option to pick the payroll model that works best for their small business, including the federal tip credit. On average, small business restaurants across the country run on a thin 3%–5% pre-tax margin. The elimination of tipping would shift more labor costs to operators, in some cases $10-$13 per hour more, at a time when they are already being impacted by increased food prices, forcing them to increase menu prices or add surcharges to survive.

The National Restaurant Association’s chief economist recently looked at broad-based cost increases in the current economic climate that are having significant impacts on profitability for most small business restaurants. Read his analysis here.

About the National Restaurant Association

Founded in 1919, the National Restaurant Association is the leading business association for the restaurant industry, which comprises nearly 1 million restaurant and foodservice outlets and a workforce of 14.5 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.