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New law ends Michigan’s tip credit—to restaurants’ delight

Photograph: Shutterstock

Lawmakers in Michigan have handed the state’s restaurants a victory by voting to kill the tip credit, a bit of legislative jujitsu that ironically provides the industry’s best chance of ultimately preserving the employer wage break.

The House joined the Senate on Wednesday in voting to phase out the credit, which allows restaurants to pay waiters, waitresses, bartenders and other tipped employees a lower hourly rate if the rest of the wages they’re due by law comes from gratuities. Under Michigan’s current laws, only $3.52 has to be paid directly by restaurants to the servers, provided another $5.73 per hour comes from tips to meet the state’s minimum required wage of $9.25.

Scuttling the tip credit would drive up a full-service restaurant’s labor costs by 241% per tipped employee, according to the Michigan Restaurant Association (MRA).

The measure approved this week would also raise the minimum wage in annual increments to $12 an hour by 2022. The tip credit would be gradually phased out by 2024.

Four out of five restaurateurs in the state expect the combined effect of the wage hike and tip-credit discontinuation to severely damage their businesses, the MRA found in a survey during the second quarter. Nearly two-thirds of the restaurants intend to cut jobs because of the heightened expenses, and 80% plan to raise menu prices, the canvass revealed.

Yet the MRA had called for the legislature to act just as it did on Wednesday. Both chambers put into law a measure that otherwise would have been proposed to voters in a ballot initiative in November. That proposal would almost certainly have been approved, and laws enacted as a result would have been virtually impossible to change, according to the MRA. Michigan law requires any amendments in a ballot-set law to be approved by three-fourths of the legislative chambers.

But by killing the tip credit and raising the state’s minimum wage through legislation, the House and Senate left open the possibility of tempering the measures, since changes in passed laws require only a majority vote. The legislation does not take effect until March, providing the industry and its legislative allies with another chance to preserve the tip credit or somehow soften its impact.

“They could amend that law specifically to save the tip credit,” an MRA representative explains in a video on the association’s website.

The discontinuation of the tip credit and the increase in the minimum wage are already law because of a quirk in Michigan’s legislative process: Measures approved by both houses of the legislature do not require the signature of the governor to formally be enacted.

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