Initiative 82, if a majority of voters vote yes in the upcoming DC general election, will eliminate the tipped minimum wage/tip credit in DC by July 2027. Specifically, the tipped minimum wage would increase immediately from $5.35 to $6 on New Years’ Day 2023, to $8 6 months later in July 2023, $10 in July 2024, $12 in July 2025, $14 in July 2026 until it matches whatever the prevailing minimum wage in July 2027 (currently $16.10 but is indexed to inflation so would likely be in the $17-20 range by then).
Before I get into some thoughts, here is some info I found interesting that haven’t seen discussed much or at all:
- DC would then join all West Coast states (Alaska, Washington, Oregon, California, and effectively Hawaii since it has a miniscule tip credit only for higher tip earners) plus Nevada, Montana, and Minnesota without a tip credit.
- Currently, DC’s tip credit (the difference between the tipped minimum wage and the prevailing minimum wage) is $10.75, the highest in the nation in terms of dollars (no state has one over $9). The tip credit makes up 67% of a tipped employee’s minimum wage, which is a fairly common % among the states (the Federal tip credit is 70%), but prior to 2005, DC’s tip credit was 55%, and many states have a much lower one, including ones that contain cities that DC residents may consider peers:
- New York (17%, down from about 43% in 2014)
- Arizona, Florida, and Colorado (about 33%)
- Illinois, Maine, Massachusetts, N.H., N.J., (40-45%)
- Missouri, Connecticut, Ohio, S.D., Vermont (50%).
- 5 of the 7 states without a tipped credit appear to never have a tipped minimum wage, at least not in the last 50 years. The experience of the 2 states that appear to have had one for a bit of time aren’t necessarily instructive for DC, given how long ago they changed and what the tip credit was before the change:
- Minnesota’s legislature voted in 1984 to eliminate the tipped minimum wage by 1988. But Minnesota’s tip credit at the time was only 20% (25% before 1977), meaning the difference between the tipped minimum wage and the prevailing minimum wage was only about 70 cents.
- Washington state is often cited as another state that got rid of the tipped minimum wage by initiative in 1988. But Washington state never had an explicit tipped minimum wage – it just happened that Washington’s statutory minimum wage for all workers for a 10 year period 1978-1988 ($2.30) was above the Federal tipped minimum wage but below the Federal minimum wage, so effectively the Washington state minimum wage could be used for tipped workers while all the other workers were under the Federal minimum wage. The 1988 voter initiative was to raise the minimum wage period, not get rid of the tipped minimum wage. The effective tip credit was only $1.05 at the time.
- If implemented, the minimum wage directly paid by employers of tipped workers will go up a minimum $12 in 5 years. The minimum wage paid directly by employers of non-tipped workers in the last 5 year period went up $3.60. The current tipped minimum wage paid directly to tipped workers is the same of the non-tipped minimum wage of DC workers in 1992. In other words, it took 30 years for minimum wage to go from today’s level, while Initiative 82 gives 5 years to employers of tipped workers to increase their direct wages.
- The 2014 ordinance passed by the Seattle City Council/enacted by Mayor actually created a tip credit where there was none before, to help accommodate businesses with 500 or fewer employers (with a tip/benefits credit) while the minimum wage was increased to $15 and above. The Seattle tip credit is $2.19/hour will be 2023 ($16.50/hour tipped minimum wage vs. $18.69 for all workers). This tip credit will end in 2025. Employers of tipped workers in Seattle went from paying $9.47/hour in 2014 to $15 in 2019 – a $5.53 increase in 9 years.
- The folks who are pushing to the end the tipped minimum wage commissioned an online poll taken in July 2021 of 300 servers/bartenders showing 88% (54% strongly support) supported eliminating the tipped minimum wage
- Question: As you may know, there is currently a proposal in the District of Columbia to increase the minimum wage over several years for tipped workers to $15 an hour with tips on top. Most restaurant workers currently are paid lower than the full minimum wage, with the difference made up by tips or by their employer. This proposal would raise the minimum wage for tipped workers to the full minimum wage while they retain tips on top.
- But we don’t know how these 300 servers/bartenders were chosen to be polled (the presentation doesn’t say how they were selected or whether they were even randomly selected), whether they are mostly staff working in the industry as a career or a second job to supplement their income, and I would argue that the poll does not necessarily automatically mean they support I 82 (there’s no indication of a time frame of how long this would be implemented, and by including “tips on top” in the question could have skewed the results).
- Although Initiative 82 does not include language changing DC law to allow tip pooling with those who don’t usually receive tips (e.g., cooks and dishwashers), the Department of Labor’s 2021 updated regulations allow all employers who don’t take a tip credit to do so. So if Initiative 82 passes, all restaurants/bars will be eligible to include back-of-house staff in the tip pool (yes, they could now if they don’t take the tip credit, but this would force them to be in a position to be eligible to do so).
- DC law requires employers with tipped workers to report quarterly (via a portal for most) to DC what each tipped worker made in pay and tips, how many hours they worked each week, and other info.
- The text of Initiative 77 on the ballot included 2 bullet points regarding the minimum wage increase to $15 for all workers (with increases for inflation afterwards) that was already law while only 1 bullet point about the tipped minimum wage. Initiative 82 is significantly clearer on this. I suspect the vote margin will actually be closer than the 10 percentage point margin of last time.
If you still care to read my personal thoughts on the tipped minimum wage and how I will vote, read on. I will warn you – as a human I sometimes act/think irrationally, so if you think my justification makes no sense, you’re definitely justified in thinking that.
Yeah, I think a tipped minimum wage is nuts.
To me, a tip credit allowing employers of workers who make tips to be legally excused from paying directly the same minimum wages of all other professions, allowing customers to make up the difference with tips (which are supposed to be voluntary, gratuities to reward good service) is pretty nuts. If we were implementing a system from scratch today, I find it hard to believe that a proponent of a tipped minimum wage wouldn’t be laughed off the scene. Although I think concerns about restaurants/bars in DC not making sure an employee’s weekly wages average the prevailing minimum wage in slow weeks (i.e., wage theft) might be overblown a bit due to the required quarterly reporting, a Department of Labor nationwide compliance study in 2010-2012 of 9,000 restaurants found 13% were violating this rule, and I think because of the nature of self-reporting tips (particularly cash tips) make wage theft more likely when the employer is not actually required to pay the full minimum wage, full stop, particularly in less popular spots. In addition, requiring an employer to pay directly the same minimum wage that other employers are required to do can provide stability in income to hospitality workers that may not be there at some restaurants/bars who aren’t covered in the Washington Post or Eater. The regulatory flexibility that would allow tip pools to include back of house staff could potentially improve pay for those workers. And other cities that have no tipped minimum wage aren’t known for a terrible restaurant and bar scene (Seattle, SF, LA, Portland, and even Vegas are not known to be culinary/hospitality wastelands) and service charges are not universally used in those states, so I do believe that in the long term, DC’s restaurant/bar industry will do ok, even if Initiative 82 passes.
That being said – I intend to vote No on Initiative 82.
The first reason is essentially philosophical – I think initiatives/referenda are generally stupid and terrible ideas. The United States is generally not a direct democracy – we live in a representative democracy. We vote for (or contribute funds to or advocate for, if we feel like doing so) elected offiicals (with professional staff and the power to hold hearings and conduct studies) to implement/change policy on our behalf We have non-political career government employees who can collect data, and develop reports for these. Perhaps this is an idealistic view of a flawed system, but even if it is, regular people, charitably, are not really well versed on issues-particularly those that don’t affect them diretctly-, and you can’t really expect them to be.
Even if you think ballot referenda/initiatives make sense, it seems like would have more validity when they are generally applicable to everyone and/or when generally people or the people affected have come out pushing overwhelming in favor of the policy, but for whatever reason it’s politically unpalatable for politicians to support it so the vote provides them cover. But Initiative 82 is neither. Yes, there are thousands of tipped workers in DC, but they are a relatively small percentage of the overall workforce. And as noted above, I find the poll commissioned cited above showing overwhelming support by tipped workers highly suspect. You can certainly disagree with my skepticism of the poll (me including this poll might even change your mind to vote yes for this) but anecdotally, it’s hard to find a tipped worker who-when asked-will say they support (though supporters of the Initiative say this is understandable that people are not going to be comfortable stating their opinion if contrary to their ownership). Friends I know who work in the industry aren’t pushing me to vote for this as well. I don’t think government officials deciding whether to implement a certain policy have to do exactly what the people affected say they want (there could be larger purpose or people affected might really have no expertise to tell you what will happen) to occure as long as they listen to them and taken them into account, but when we’re voting in an initiative/referendum, I think it’s incredibly important to do so, as we as voters are not really accountable to anyone.
But even putting aside my antipathy to ballot initatives, even if this was proposed by a DC Councilmember, I would not support a bill that looked like Initiative 82, because the period of implementation appears to be unprecedented in modern US history. I think the speed of the implementation will lead to a short/medium term closure of more bars/restaurants than otherwise and servers/bartenders will lose income on the whole compared to a non-Initiative 82 world. Here are a few reasons for why I think this.
As I stated above, I think all employers should be responsible for paying the same minimum wage, no matter what type of business or whether their employees get tips. But think it’s crazy to think that requiring a dramatic labor cost increase in such a short period will not lead to sharp price increases, service charges, closed businesses, less service, corners cut on food/drink quality, and reduced income and profits for many workers and businesses. This would increase the minimum wage paid directly by employers by at least $12 in a five year period; employers of non-tipped workers had three decades for their minimum wage requirement to go up that amount. Compared to Seattle, where many complained about the rapid increase in the minimum wage, the increase in a 5 year period is double the amount under Initiative 82.
Decreasing the tip credit to be in line with peer states, and an eventual phase-out of the tipped minimum wage over a 15-20 year period (which would have led to less anxiety by workers/owners and a less dramatic immediate change in business models) should have been high up on the agenda of RAMW and others who were anti I-77 and pushed the DC council to repeal it. The fact that they didn’t propose legislation to do so in 2018 (instead enacting Tipped Wage Workers Fairness Amendment Act of 2018) may have been a massive mistake, depending on how this election goes.