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NYC operators sound off on ending the tip credit: 'Fugetaboutit!'

More than half the surveyed restaurateurs and club owners say they'd consider shutting down at least one of their operations. Nearly 9 of 10 contend it'd be a disaster.
More than half the city's restaurants said they'd consider closing one of their establishments. | Photo: Shutterstock

Discontinuing the tip credit in New York City would be devastating for the metropolis’ celebrated restaurant, bar and nightclub trades, with 54% of local operators likely to consider shutting a place for good, according to a check of attitudes across the Big Apple.

The survey of nearly 900 operations also found that 45% would consider replacing the convention of tipping with some alternate way of compensating servers, bartenders and hosts, a quest several of the city’s most renowned establishments have pursued without success.

Regardless of that outcome, 76% of the surveyed restaurateurs said they’d raise menu prices to cover the increase in labor costs, and 67% acknowledged they’d cut positions to offset the higher payroll expenses.

All in all, 97% of the canvassed operators said they were concerned about the possibility of losing the tip credit, and 88% predicted that rolling back the concession to employers would be disastrous.

The survey of 879 nighttime venue operators across all five of Gotham’s boroughs was conducted by the New York City Hospitality Alliance, a trade group that represents the local hospitality business. The results were released after Albany lawmakers once again signaled their interest in disallowing the tip credit across the Empire State.

A similar effort, backed heavily by organized labor, failed in 2015 to draw the support of then-Gov. Andrew Cuomo. He instead pushed through a hike in the statewide minimum wage to $15 a hour.

The minimum wage has since risen to $16 in New York City. The wage employers are obliged to pay tipped employees directly has risen to $10.65. No more need be paid in cash to the servers and bartenders if they collect at least $5.35 per hour in gratuities, which brings them up to the minimum of $16. That $5.35 is the tip credit.

Under intense lobbying by groups like the Service Employees International Union and its tip-focused holding, One Fair Wage, the District of Columbia started rolling back its tip credit in May. In 2027, servers there will be entitled to the same $17 their non-tipped co-workers must be paid directly.

The reduction of the tip credit has brought significant changes to Washington, D.C., and its restaurant workforce. Loath to hit customers with a large price hike, a large majority of restaurants there have opted to add service surcharges, and many have said their next restaurants would be developed in outlying areas where the tip credit is still legal.

With the added factors of soaring street crime and downtown office employees working at home, full-service restaurants in the nation’s capital have cut their payrolls by 4.4%, or 1,300 jobs, according to federal jobs data.

Proposals to phase out the tip credit have been raised in the neighboring states of Virginia and Maryland. Efforts to put a credit-killing referendum on November general-election ballots are also evident in Massachusetts, Ohio, Illinois and Arizona. Michigan is waiting to see if its State Supreme Court will allow that state’s tip credit to remain in effect.

Tip credits are already prohibited in seven states, including California, Washington and Oregon.

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