“The bill states nothing about what’s going to happen to tips,” he says. “How will that be allocated and taxed? For those of us that are already paying employees more—even the kids at Laughing Taco make $15 or $20 per hour per shift—do we say no more tips or set a service charge? There’s this large lump sum of money now that there’s no discussion about.”
His fears are echoed by the National Restaurant Association (nra), which slammed HR 582 as “the wrong wage at the wrong time, implemented the wrong way,” citing a Congressional Budget Office (cbo) analysis that the bill could end up eliminating 3.7 million jobs.
The association is calling for a common-sense approach to minimum wage that reflects the economic realities of each state and region. “Fifteen dollars in New York is not $15 in Georgia,” says NRA advocacy spokesperson Jeff Solesby. “Because 90 percent of restaurants are small- and family-owned businesses, we know that increasing it too high or too soon can cripple these restaurants, which are an integral part of their community fabric.”
In places where unemployment remains elevated and wage growth has been stagnant, new restaurant openings will be severely constrained or will turn negative, says Micah Rowland, chief operating officer of hiring automation software provider Fountain. “When unemployment is near the national average or even lower, job growth will slow, and wage increases will be more moderate.”
He anticipates that the shift toward automation and delivery will increase as operators seek more revenue out of fixed assets and tighter competition slows hiring.
Yet for all the negative outcry surrounding the CBO analysis, it’s hard to deny the benefit that a higher minimum wage would have for an overwhelming share of low-income workers. A $15 wage floor in 2025 would boost the wages of some 27.3 million low-wage workers, increase the income of families earning below three times the poverty rate by $21.9 billion, and reduce the number of people living in poverty by 1.3 million, nearly half of them under age 18.
“I think there are different paths to getting to a living wage,” says Adam Orman, co-owner and general manager of L’Oca d’Oro, a tip-free restaurant in Austin, Texas. “At some point you can’t just keep raising hourly rate. There has to be a point where it becomes about profit sharing and mixing salary in with that.”
The problem with tipping
America’s relationship to tipping is unique, as one of the only countries that allows businesses to leave a fair wage to customer discretion. A 2008 Cornell University report found that some diners let race, gender, and attractiveness impact how much they pay servers and that diners of all races tend to give higher tips to white servers and lower tips to black servers. Both male and female servers working in tipped-minimum wage states report higher rates of sexual harassment; women are twice as likely to report experiencing sexual harassment in those states, according to Washington, D.C.–based advocacy group ROC United.
In Seattle and San Francisco, which have high minimum wages and no subminimum wage, tipped workers receive higher take-home pay than their counterparts in cities like D.C., according to the bipartisan Economic Policy Institute. The institute also reported 20 percent lower poverty rates compared to cities with a separate tipped wage, plus a significant decline in reports of sexual harassment—all without damaging business.
Solesby notes that eliminating the tip credit remains unpopular in a lot of circles, particularly among servers who make an average of $19–$25 an hour on top of minimum wage. He points to efforts to end the tip model in Maryland, D.C., Michigan, New Mexico, and Maine, which ultimately failed because voters and employees overwhelmingly support tipping.
Staff and customer buy-in was the biggest challenges for L’Oca d’Oro for the first six months after it opened tip-free in 2016. Servers start at $8 per hour, and all back-of-house employees start at $12, and a 20 percent pre-tax service charge is distributed to all front- and back-of-house staff based on hours and role. Staff make 23 percent of net sales on average.
Orman attributes the initial hesitation to not marketing the service charge positively or aggressively enough. Now the charge is communicated on all menus, every page of L’Oca d’Oro’s website, and itemized and signature receipts; servers highlight it, too. But Orman is careful to minimize its impact on the customer experience. Servers are instructed to pick up receipts before customers leave to make sure they haven’t left an additional tip by mistake.