With the phase-out of the tip credit slated to begin Monday in Washington, D.C., more than 70% of local restaurants intend to offset the expected spike in labor costs by tacking a service fee onto guests’ checks, according to a survey by the Employment Policies Institute.
That countertactic is clearly emerging as one of the most common responses to the elimination of the credit, which allows employers of tipped workers to count gratuities as a portion of wages.Currently, local full-service restaurants are obliged to pay their servers and bartenders $5.35 an hour if they collect at least another $5.40 an hour in tips. As of May 1, the mandated direct payment rises to $8 an hour.
The wages paid directly to tipped workers will continue to rise each year until 2027, when all restaurant employees will receive at least the same mandated minimum wage of $16.10 an hour.
In anticipation, about 150 restaurants in the District have already adopted a service fee. The proceeds can be used to pay the increased wages, provided customers are alerted before ordering about the charge and how the money will be used, and that the disbursement stays within those stated parameters.
Although restaurants in a number of cities have added a service charge to counter historic inflation, the prevalence has not come close to what’s anticipated for Washington. The EPI’s survey results suggest restaurateurs there aren’t convinced surcharges will be their silver bullet.
Nearly 4 of 5 (79%) of the respondents said they’ll likely have to raise prices this year to counter the higher wages servers and bartenders will receive. Two-thirds said they’ll likely reduce their waitstaffs this year, and 3 of 4 reported that the needed money will come in part by tempering increases in the pay of back-of-house workers.
Still, many participants indicated that they’re giving up on what’s become one of the nation’s most vibrant dining markets. Forty-six percent they’d forgo Washington and open their next restaurant in nearby Virginia or Maryland, which both have a tip credit.
The District will become the eighth state-level jurisdiction to prohibit a tip credit.
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