With The Tip Credit Falling, Full-Service D.C. Restaurants Cut 3,700 Jobs

By Peter Romeo of Restaurant Business Online

Full-service restaurants in Washington, D.C., have cut 3,700 jobs – about 12% of their workforce – since the jurisdiction began rolling back its tip credit in May 2023, according to data newly released by the U.S. Bureau of Labor Statistics.

The federal agency did not draw a correlation between the drop in jobs and the reduction in the credit, which fell in May and then again in July of last year. Restaurants there have also been affected by a slow return of government workers and employees of companies that interact with the government to their downtown offices. Operators say traffic has also been dampened by fears about rising nighttime crime.

But restaurants without table service have not cut jobs nearly as aggressively as their full-service counterparts have. Between May 1 of last year and the end of January 24, limited-service places have eliminated 400 positions, or just 1.7% of their collective payrolls.

In addition, downtown offices were even emptier during the corresponding eight months of a year earlier, yet full-service places added 1,200 positions during that timeframe, an increase in their workforce of 4.5%, according to the BLS’ numbers.

Industry advocates say the numbers underscore the damage that has been done to the local restaurant market by the ongoing phase-out of the tip credit.

“In just seven months, the city’s full-service restaurant employment has been gutted by the change,” Sean Kennedy, EVP of public affairs for the National Restaurant Association, said in a statement. “Higher labor costs mean higher menu prices. That means diners are eating out less and tipping less, which in turn means less income for servers and operators.”

The data comes to light as opponents of the tip credit are pushing to eliminate the employer concession in a number of other states, including Illinois, New York, Massachusetts and Ohio.

The efforts there are being led by One Fair Wage, the labor advocacy group that was a major force behind the tip credit’s phase-out in Washington. The group, which receives funding from the Service Employees International Union, argues that tipping is an abomination that routinely exposes servers and other tipped employees to sexual harassment and other types of abuse. It contends that workers can’t push back against the abusers without risking the loss of tip income.

The District’s tip credit was set on a sunset course by local voters’ approval of a referendum on the November 2022 ballot. The measure called for the credit to be dropped in stages until it hits zero in July 2027, meaning servers, bartenders and other tipped employees will receive the same direct wage as their non-tipped colleagues as of that date.

Until May 1 of last year, restaurants were obliged to pay servers and other regularly tipped employees just $5.35 an hour if tips brought their income up to $16.10. The $10.75 that came from gratuities was the tip credit.

The direct payment required of a tipped worker’s employer rose to $6 an hour in May and $8 in June, and will rise to $10 on July 1 of this year.

With more of tipped employees’ income coming directly from their employers, many full-service restaurants in the Districts have tried to preserve margins by adding surcharges to their bills as well as by raising prices. According to the Employment Policies Institute, 70% of local sit-down establishments either have already tacked on service fees or plan to do so as the tip credit ebbs.

All told, 96% of full-service places in the District have raised prices since the rollback of the credit began last year, according to the Restaurant Association of Metropolitan Washington (RAMW). It pegged the average increase at 16%.

The trade group also found last winter that labor costs for restaurants in the District had risen by a mean of 25%.

The use of service fees has become so routine in the District that the City Council recently set regulations for how the surcharges can be levied. Among other things, the guidelines specify that restaurants can assess no more than 20% of a patron’s bill as a surcharge.

The package of concessions also included a measure intended to bring down liquor-liability insurance rates as an offset to the local drop in restaurant revenues.

Areas outside the District still allow restaurants to use a tip credit, though labor advocates in Maryland and Virginia have tried to kill the convention there.  According to the RAMW, about 32% of Washingtonians are now dining more often in those states, which lie just outside the capital’s borders.

As of last November, restaurants within Washington were closing at the rate of roughly one per week, the RAMW said at the time.

“What we’re learning from the D.C. experience is that eliminating the tip credit will only reduce income, choices, and opportunities,” said the NRA’s Kennedy.

He called the elimination of the tip credit “a lose-lose-lose for any community.”