FAQ’s:

What is the tipped minimum wage?

Like all DC employers, restaurants are required to pay their employees no less than the regular minimum wage. This is true for all employees, whether they earn tips or not. However, for tipped employees, nearly all states, including DC until very recently, allow(ed) employers to pay a base wage under the minimum wage if the employee earns enough in tips to bring them up to or beyond the minimum wage. (In DC, the minimum pre-tip base wage was 5.05 in 2022). If tips do not bring the employee to the regular minimum wage or beyond, the employer is required by law to add wages to their paycheck to ensure the tipped employee makes the regular minimum wage.

What is the regular minimum wage in DC right now?

$17.50 as of July 1, 2024. DC Minimum wage is tied to the Consumer Price Index so it has increased rapidly recently and will continue to do so. In 2019, DC Minimum Wage was $13.25.

What is Initiative 82?

On November 8, 2022, 74% of District Residents voted in support of Initiative 82 (I-82) which eliminated the tipped minimum wage.  The passage of I-82 meant that, regardless of how much money a tipped employee earned in tips, an employer was no longer allowed to pay an employee wages that equaled less than the minimum wage. So practically, this would mean a bartender or a server would go from earning $5/hour in pre-tip wages to earning $17.50/hour in pre-tip wages.

Does I-82 ensure servers and bartenders make more money?

No. I-82 does not ensure service staff makes more money; it simply requires employers to raise their base wages. It is left up to the employer to figure out how to cover that increased cost which in turn impacts how much employees earn (in tips, wages, and service charges) and how much guests pay (in regular charges, service charges and tips). So, if, for example, a server pre-I82 makes $35/hour and $5 of that is in base wages and $30 of that is tips, they could make the same amount after I-82 and earn $20/hour in base wages and $15 /hour in tips.

Prior to I-82, how much did tipped employees make?

In the year prior to I-82, our servers at Chef Geoff’s, for example, averaged $34/hour in tips plus wages.  

Does this change happen right away?

No, the tipped minimum wage increased in 2024 and will continue to increase in 2025 and 2026 and then in 2027, tipped employees will make the same base wage as a non-tipped employee. Because the regular minimum wage is tied to the Consumer Price Index, we estimate that amount to be approximately $20/hour in 2027. So, at the end of the day, it will roughly be a $15 increase in what employers pay service staff hourly.  

Annually, what would that roughly cost one of your restaurants?

At Chef Geoff’s New Mexico Ave, for example, servers and bartenders alone worked approximately 22,000 hours. A $15 raise works out to about $330,000 (and this does not include increases for support staff like bussers and runners). When we look at the total expense of our two DC locations, we estimate the cost to be close to a million dollars.

If you add that expense to your business, do you still make money?

No. If we add that expense to our business, we will lose money.

How have your restaurants handled this increase in costs?

We have implemented a 5% fee for in-house dining that will likely rise as the wage requirements rise. Legally, this fee is considered a service charge.

Isn’t a service charge the same as a tip?

No, a service charge is a charge from the restaurant and, as such, is income for the restaurant that can be used as the restaurant sees fit. A service charge is also subject to sales tax whereas a tip is not.

What do you do with the service charge?

We use it to pay expenses including the large increase in wages resulting from I-82.

Does the service charge go directly to the tipped employee?

No. If you pay $5 in service charge and your server is Bob, Bob doesn’t directly receive that $5. It goes to the restaurant.

What about the tip? Do you use that to pay expenses?

No. It is illegal for an employer to take tips from an employee. All tips go directly to the employee who earned it. (They then share some of that tip with supporting staff like bussers and runners.)

Are you expecting guests to pay for the increase in costs resulting from the elimination of the tipped minimum wage?

No. We expect guests to adjust their tip so the total amount they pay is the same. By paying 5% more in service charge and 5% less in tips, for example, guests end up paying the same pre-tax amount.

Have you considered other models?

Yes, below are some of the possible ways of approaching and some of the challenges of each model. For each, we consider the following simple question … would it allow for an outcome where neither guest nor owners nor employees are negatively impacted?

One option is to keep prices where they are, add a 20% service fee, and have the server/bartender keep the service fee like they do with tips. This would work for guests, but servers would make way more (given their higher base pre-tip wages) and the restaurant would have to cover the full cost of the labor cost increase with no additional revenue. This would put us out of business.

Some have suggested raising prices and keeping tipping. This negatively impacts guests through higher prices, so we put this aside.

That leaves only two other options:

Raise prices 20% and eliminate tipping and use the additional revenue to pay staff what they made prior to I82 in wages and tips.

or

Keep pricing where it is, eliminate tipping, add a 20% service charge, have the restaurant keep the 20% and use it to pay staff what they made prior to I82 in wages and tips and use the service charge to offset that wage cost increase for the business.

The first challenge to these models is that they don’t generate enough revenue for the company to pay the service staff for the loss of tips AND for the increased wages. The increases – either in the form of higher prices or higher service charges – would have to be far higher than the 20% resulting in higher prices for the customer.  

The second challenge is that both solutions entail the elimination of tipping. This may eventually be the model that restaurants turn to but the primary challenge here is creating a pay structure that, like the tip system, incentivizes sales and speed and ensures that incentives drive outcomes that are beneficial to the business, the guests and the employees. In the tipped system, employees are incentivized to serve guests well, to work quickly and efficiently, and to work when it is busy. These are all outcomes that are not only good for them but good for the restaurant owner and the guest.

In the short term, most service staff employees prefer working in an environment with tips. They love the opportunity to use their knowledge and skills to enhance the guest's experience and generate higher tips. Eliminating tips at a time when many restaurants still expect them is a major risk from a staffing perspective.  

Another important unknown for us is how guests will react. How will they react to an obligatory 20% service charge if they are not happy with the service? If the price is built into the price of the meal, will people incorrectly perceive our menus to be “overpriced” as compared to similar restaurants? It is important to remember that there are other cost pressures that we, as a restaurant, face, especially in these inflationary times. We therefore need to raise prices to cover these other increases. When you combine these increases, it starts to become a daunting expense (both perceived and actual) to dine out and that can have a negative impact on traffic.

One other practical challenge associated with this model for the restaurant is that we would pay significantly more in rent since, like many restaurants, we pay a percentage of sales to landlords.

These challenges are why we concluded that, for now, the service fee model is the best for our guests, employees and business.

Does phasing in I-82 over several years make it easier for restaurants to prepare themselves for the change?

In our experience, no. Changing the rules of the game slowly is extraordinarily hard for small businesses like ours to navigate. From budgeting to accounting to payroll to setting up the point of sales to communicating with employees and guests, each time changes are made to the base minimum wage, small businesses must spend an exorbitant amount of time figuring out how to make it work. This is why many have advocated, including some DC Council members, to expedite the implementation timeline. We think this is a good idea. Unfortunately, so far, efforts to expedite the process have failed.  

Will you have to raise your service fee as the tipped minimum wages increases?

We will likely need to raise the service charge, raise prices, or raise prices and the service charge.

How has the transition been so far for your guests?

The interim phase in between the tipped system and the non-tipped system has been very confusing for guests. As we have seen, we have gone from a tipping system where everyone kind of knew the drill and everyone did it about the same way to a new system where everyone is confused, and everyone does it differently. We have done our best to explain the transitional system to guests, but it is confusing to explain and inevitably some guests think we are trying to profit from the confusion.