A “temporary” tip credit that’s been in place for Seattle full-service restaurants for a decade will sunset on Jan. 1, when all employers in the city will be required to start paying workers at least $20.76 an hour, Mayor Bruce Harrell confirmed Thursday.
“While this is the right thing for wage fairness, we recognize it will present a significant change for many small businesses who are still recovering from the impacts of the pandemic and the resulting record inflation,” the mayor said in a statement. “As the tip credit expires, we are committed to aggressively addressing many of the pressures facing small restaurants moving forward – from public safety to inflation, insurance, and a wide array of other cost pressures, including best practices in addressing the absence of a tip credit.”
Restaurants and other small businesses will also lose the $2.72 reduction in the minimum wage they were required to pay if employees were provided with health insurance.
The new across-the-board threshold of $20.76 will be one of the nation’s highest minimum wages. It is being imposed at what is widely regarded as an extraordinarily difficult time for Seattle’s restaurant industry, which has been combatting a downturn in business deepened in part by fears of nighttime crime.
Seattle’s minimum wage for most employers is currently $19.97 an hour. Restaurants were allowed to directly pay servers, bartenders and other tipped workers a reduced rate of $17.25 an hour provided the employees made at least $2.72 an hour in tips.
Employers have been required to follow a complex matrix of wage requirements since an unorthodox pay model was hammered out in part by Harrell at the start of last decade. A tip credit was granted at that time for employers of tipped workers, but with the provision that it would be temporary.
The local and state restaurant industries had hoped to re-up the concession, but had largely acknowledged in recent weeks that they would were unable to convince civic lawmakers.
State law does not permit employers to use a tip credit, but civic governments are empowered to pre-empt the ban with local ordinances. Cities and counties there have a tradition of veering from state regulations, according to veteran restaurant-industry lobbyists.
The failure to extend Seattle’s tip credit marks a rare defeat for the business in its recent efforts to preserve the tip credit. Last year, phase-outs of the payroll concession began in Washington, D.C., and Chicago. But the industry has succeeded in keeping proposals to end the credit off the November ballots of several states. Currently, an initiative to kill the employer break will only be put before voters in Massachusetts.
The fate of the credit remains up in the air in Michigan, where a decision by the state Supreme Court could trigger a phase-out starting Feb. 1. Restaurants and servers there have been pushing legislation that would preserve the break.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.