Ohio restaurants try a jujitsu move to protect their tip credit

The industry and its allies are pushing legislation that would raise the state's minimum wage to $15 but keep the credit. The move is intended to thwart an effort to both raise the wage and kill the credit through a ballot initiative.
Ohio restaurants are jockeying to keep the tip credit. | Photo: Shutterstock

Restaurants and their allies in Ohio are lobbying for a bill that would gradually raise the state’s minimum wage to $15 an hour—a concession they’re willing to make to save the tip credit.

The proponents are betting the legislation will sap support for a ballot initiative that would both set a $15-an-hour pay floor and kill the credit, significantly escalating the labor expenses of full-service restaurants. Labor advocates are collecting signatures to get the wage hike and elimination of the tip credit on the November general election ballot in the form of an initiative.

Historically, ballot measures calling for wage hikes have passed with relative ease. The proposals essentially ask voters, “Would you like neighbors earning the minimum wage to be paid more?”, a proposal that’s proved compelling in jurisdictions like Washington, D.C. In November 2022, voters there approved a referendum to phase out the local tip credit.

Because the elimination of Ohio’s tip credit is rolled into the pay-hike initiative being pushed by labor, the restaurant industry fears the measure will be approved despite considerable misunderstanding of the employer concession. 

Labor groups assert that restaurant servers and other workers who customarily earn gratuities are paid less than non-tipped colleagues. In fact, servers, bartenders and any other sort of tipped restaurant employee are entitled to the same minimum wage as back-of-house staffers. But employers can count tips as a portion of what those tipped workers are due, significantly reducing a company’s labor costs. If gratuities fail to bring an employee’s pay up to the minimum, the employer pays the difference.

In reality, tipped workers tend to make far more than back-of-house staff, a situation that has made recruiting for kitchen positions considerably harder.

A bill recently introduced by Republicans in the state legislature would raise Ohio’s minimum wage in four steps, until it reaches $15 an hour on Jan. 1, 2028. The minimum is currently $10.45 an hour.

The cash wage employers would be required to pay tipped employees would rise over the same period from $5.25 an hour to $7.50. The assumption is that those workers would collect enough in gratuities to bring their incomes up to $15 an hour. If they didn’t, employers would cover the shortfall.

The wages for both tipped and non-tipped employees would then be adjusted periodically to reflect changes in the Consumer Price Index.

The measure, SB 256, is supported by the Ohio Restaurant Association.

Labor advocates like the union-backed group Raise the Wage Ohio would prefer to eliminate the tip credit and entitle all workers in the state to a wage of at least $15 an hour.

SB 256 also calls for extending a state-level tax credit to Ohio workers earning $63,400 or less per year. Currently, those employees are entitled to a federal tax credit of $600 to $7,430, with the amount determined by the size of the tax filer’s immediate family and their household income.

The new legislation would sweeten the credit for Ohioans below the federal income threshold by $54 to $892 annually.

Organized labor had been expected to succeed in getting its wage initiative on the fall ballot. Other measures to kill the tip credit are expected to arise in Massachusetts, Illinois and Arizona.

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