Full-service restaurants in Washington, D.C., have cut at least 1,300 jobs—4.4% of their workforce—since a phase-out of the tip credit began last May, according to federal data, supporting the industry’s contention that ending the employer break will hurt the local economy.
In contrast, the National Restaurant Association found in analyzing statistics from the U.S. Bureau of Labor Statistics, sit-down restaurants in the suburbs surrounding the District added 2,000 positions, a 3% rise in their collective workforce.
Industry advocates had warned that regular patrons of Washington restaurants would shift their spending to establishments in Maryland and Virginia because places there had less pressure to raise menu prices and levy surcharges. Because their tip credit was unchanged, the operators were not driven to increase the cash wages they paid servers, bartenders and other employees who usually receive gratuities.
With prices rising more moderately in the suburbs, 32% of Washington diners are increasing their visits to restaurants outside of the city, according to research from the Restaurant Association of Metropolitan Washington (RAMW).
Increased business would presumably necessitate hiring more people.
“There are now several months of data showing job losses in full-service restaurants in D.C., while in the same period, full-service restaurants in the immediate suburbs are gaining jobs," Mike Whatley, VP of state affairs and grassroots advocacy for the National Restaurant Association, said in a statement to Restaurant Business. "This data continues to confirm that tip credit elimination policies are bad for employees, customers and operators.”
Industry officials acknowledge that factors other than a reduction in Washington’s tip credit could have prompted full-service places in the District to eliminate jobs between May and last November, the most recent month for which detailed local data was available from BLS.
Washington operators say they’ve also been struggling because many white-collar employees are still working at home rather than trekking downtown to their offices. They also contend that rising nighttime crime within the district is scaring away tourists and keeping residents at home.
But NRA economist Bruce Grindy noted in his analysis that full-service restaurants created 2,000 jobs between May and November of 2022, a 7.7% expansion of the sector’s workforce, when those factors were already being felt.
In addition, he wrote, limited-service establishments hired 400 more people while full-service places were cutting 1,400 positions between May and November of last year.
The analysis comes as full-service restaurants in Maryland face another attempt to kill that state’s tip credit. Employers there are permitted to pay tipped workers just $3.63 an hour statewide and $4 an hour in Montgomery County if the servers and bartenders collect enough in tips to bring them up to the statewide minimum wage of $15 an hour (or $16.70 per hour for Montgomery County businesses with at least 51 employees.)
Lawmakers introduced a bill last September to end the tip credit and require employers to pay tipped workers the same minimum as non-tipped employees receive.
A similar proposal was floated without passage in March.
Labor groups like One Fair Wage are also trying to kill the tip credit in Illinois, Ohio, Massachusetts, Arizona and Connecticut. The efforts there are focused on repealing the employer break via referenda on the November ballot.
That route was pursued successfully in Washington, D.C., by One Fair Wage in November 2022. Voters passed a ballot initiative to phase out the tip credit over several years and entitle all employees to a direct wage from their employers of at least $17 an hour, the highest state level in the nation.
Because of the impact reported by D.C. operators, RAMW is lobbying local lawmakers to kill in the credit in one move rather than stretch it out over several years. They refer to that remedy as ripping off the BandAid.
Correction: An earlier version of this story incorrectly stated the minimum wages for tipped employees in Maryland and its Montgomery County. The minimum wage for the county was also misstated.
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