Keeping the tip credit quickly emerges as a top restaurant concern for 2024

New efforts to kill the credit are arising in Illinois and Maryland, adding to the activity in four other states and on Capitol Hill. Meanwhile, lawmakers in Washington, D.C., are considering a measure to fix the results of losing the credit there.
Bills to kill the credit are expected to be introduced in the Illinois legislature. | Photo: Shutterstock

Legislation phasing out Illinois’ tip credit is expected to be introduced in both houses of the state legislature later this week, following the reintroduction of a bill in Maryland to kill the employer concession there.

An effort to eliminate the credit has been expected in Illinois since Chicago lawmakers voted in October to roll back the break for employers there.

Indications that a state bill is imminent drew an immediate statement of opposition from the Illinois Restaurant Association.

“This legislation will do more harm than good as it will fundamentally change the way all restaurants operate,” the group warned in a statement issued to the media. “These changes will lead to job cuts, an increase in labor costs, and ultimately force restaurant owners to make difficult decisions.”

The developments in Illinois and Maryland come as the City Council of Washington, D.C., is considering a proposal that would address the aftereffects of reducing the tip credit there in May and July of last year. Among other things, the measure aims to counter the negative impact on the struggling local restaurant industry by seeking a reduction in the cost of liquor liability insurance.

The flurry of activity comes as New York City’s restaurant trade strives to thwart the intentions aired by some Albany lawmakers to end the tip credit within the Empire State. The New York City Hospitality Alliance recently released research data that shows 54% of Big Apple’s restaurateurs expect the economic impact of ending the employer concession would force them to close at least one of their operations within the state.

Meanwhile, the union-backed group One Fair Wage is collecting signatures in Ohio to let voters decide in November if the state should keep the tip credit there. The referendum aims to raise the minimum wage for all workers in the state through an amendment to the state constitution. The revision would also end the tip credit by 2029.

A similar push for a referendum is underway in Massachusetts, though that measure calls for phase-out through legislation rather than an amendment to the state constitution.

Simultaneously, labor advocates in Arizona are scrambling to collect the 255,949 signatures that must be gathered by July 3 to get a tip-credit referendum on the November general-election ballot. The proposal would phase out the credit by 2028.

The State Supreme Court rather than voters or legislators will decide if Michigan keeps its tip credit. The high court is expected to rule on the issue by summer.

All of the state efforts to eliminate the credit would be moot if a piece of federal legislation called the Raise the Wage Act should win Congressional approval. The bill would end the tip credit nationwide within six years of passage, entitling all restaurant workers, tipped or not, to at least $17 an hour unless their state minimum wage is higher. The measure was introduced by Sen. Bernie Sanders in July, but has yet to progress, signaling the odds are against passage near term.

Still, the flurry of activity underscores that preserving the tip credit has emerged as a top priority of the restaurant industry this year. In releasing its annual State of the Industry report on Tuesday, the National Restaurant Association included that imperative in its list of key legislative concerns the trade will likely face in 2024.

Until Washington, D.C., outlawed its tip credit in November 2022, the industry had not seen a major jurisdiction outlaw the credit since Maine killed its version in November 2016 via a ballot initiative. Because of an outcry from servers, lawmakers in the state re-instituted the employer break about seven months later.

Seven states disallow employers from taking a tip credit: California, Minnesota, Nevada, Washington, Oregon, Montana and Alaska.

The tip credit allows restaurants to count gratuities toward the minimum wage due servers, bartenders and other regularly tipped employees. On a federal basis, employers can pay the tipped workers just $2.13 an hour if the individual collects at least another $5.12 in tips, bringing them up to the mandated minimum wage. Otherwise, the employer is required to make up the difference.

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