Restaurants in D.C. May Struggle with 275% Minimum Wage Increase

Last week, Washington D.C. voters elected in favor of Initiative 77, which proposed increasing tipped employees minimum wage to $12.50 – and then raising it even more to $15 by the year 2020. These adjustments will have employees who are tipped and non-tipped earning the same hourly amount.

Restaurant owners are in opposition to the measure, as it would devastate their margins that are already narrow, and it would require them to raise prices. Restaurants anticipate that guests will continue to visit the restaurant and tip, which will likely only cause customers to reduce the occurrence of how often they are able to afford to dine out. The initiative was approved with 55% voter support.

The current law in D.C. and other states affirms that tipped workers may be paid less than minimum wage (the minimum wage for tipped workers in D.C. is $3.33) because tips cover the difference. However, restaurants are required to pay employees $12.50 an hour if the tips don’t increase their wages to $12.50 so tipped employees should always make at least that much already.

Advocates of the vote deemed it as a win because they believe that a standard minimum wage can help to reduce sexual harassment and that it can also improve the lives of minorities and women. Supporters also consider workers to be living at a poverty level if they are making a living based on tips alone.

In 2017, a poll found that 36% of Americans feel that the current tipped wages are appropriate, and almost half would prefer to eliminate tipping and to increase wages.

Inexpensive restaurants would be the most affected by paying higher hourly wages because they cater to a clientele that tends to be more budget-minded. Labor expenses are high, and one-third of the average restaurant’s revenue has to be spent on it. A typical net profit of a full-service restaurant is roughly 6%.

A restaurant that is medium sized with six employed servers will have labor costs increased by roughly $240,000 every year. Dining establishments in D.C. will soon be forced to get creative to find a way to afford this cost increase.

Unfortunately, the Census Bureau found that higher paid wages did not usually result in higher pay because customers end up tipping lower. Even further, the research also revealed that the availability of jobs is greatly reduced when restaurants have to pay tipped employees $5 or more per hour.

“Retaining good employees increases sales, customer happiness, staff satisfaction, organizational learning and knowledge, and progress monitoring,” stated Layne Davlin, founder and CEO of Einstein HR. If Initiative 77 causes tipped workers to experience a dramatic reduction in their take-home wage, it could impact their willingness to continue working in their positions.

It seems as if Initiative 77 could do more harm than good; especially since owners, servers, and many employees in the D.C. restaurant industry in addition to Mayor Muriel Bowser are in opposition to it.