United States: D.C. Employers Face Minimum Wage Increase For Tipped Workers

Employers of tipped workers in Washington, D.C. may soon face a tipping point of their own as the result of a voter initiative just approved by voters. If the law takes effect, the minimum rate of pay for such workers will steadily increase for at least the next eight years. However, before the wage hike takes effect, either Congress or the D.C. Council could take action to prevent the increase from taking effect, so employers should stay aware of developments to determine their future obligations.

Vote Is In: Wage Hike Approved

It's no secret that, on an hourly basis, tipped workers are permitted to be paid less per hour by their employers in many jurisdictions across the country. The theory behind this disparity is that customer tips and gratuities will more than make up the difference between their hourly wage and the minimum wage. At the same time, it's no secret that the hospitality industry operates on razor-thin margins, and is often the first to feel the impact of a shaky economy.

D.C.'s Initiative 77 was designed to provide a steady boost to the wages received by tipped employees to secure a more stable income, eventually topping out at the standard legal minimum hourly wage in the District. The District's voters agreed with this line of thinking, voting in favor of the measure on June 19 with just over 55 percent of the tally.

Impact of Initiative 77: The End of Tipping In The District?

Under current law, employers in D.C. are permitted to pay a tipped employee $3.33 per hour as long as customer or client tips increase that hourly wage rate to at least $12.50 per hour (the city's current hourly minimum wage for all workers). If tips fall short of that target, the employer must make up the difference. And, under a law passed just two years ago, the tipped worker minimum wage was already slated to increase to $5.00 per hour by 2020.

If it becomes law, Initiative 77 will dramatically increase the minimum wage for tipped employees well beyond the current $3.33 per hour or 2020's $5.00 per hour rate. Instead, the tipped minimum wage under Initiative 77 will slowly but significantly accelerate each year until it matches the city's general minimum wage in the year 2026. The schedule for the wage hikes is as follows:

July 1, 2018:    increase to $4.50 per hour

July 1, 2019:    increase to $6.00 per hour

July 1, 2020:    increase to $7.50 per hour

July 1, 2021:    increase to $9.00 per hour

July 1, 2022:    increase to $10.50 per hour

July 1, 2023:    increase to $12.00 per hour

July 1, 2024:    increase to $13.50 per hour

July 1, 2025:    increase to $15.00 per hour

On July 1, 2026, the wage rate for tipped workers would increase to match the rate of D.C.'s minimum wage, whatever it happens to be on that date.

Controversy Around Measure Could Spike Wage Hike

Somewhat strangely, both business owners and employee advocates have levied arguments against Initiative 77. Business owners contend that increased labor costs will lead to higher restaurant prices that will be passed along to customers, and potentially could lead to layoffs and business closures if the market can't bear the rise in prices.

Meanwhile, some worker advocates are concerned that the wage hike could lead patrons to tip less—resulting in potentially less take-home pay for tipped workers and an overall worse economic situation for them. They point to the experience of restaurant workers in states with similar measures who ended up witnessing lower tips as the result of receiving a higher hourly wage rate from their employers.

The initiative still faces two hurdles before becoming official, and the arguments of business owners and employee advocates continue to be pressed. First, as with many laws passed by the D.C. Council, Initiative 77 must withstand a review by Congress. The initiative will only become effective if Congress takes no action to snuff out the measure for the next 30 legislative days.  

Second, and more critically, the D.C. Council could take matters into its own hands and kill the measure. Ten of the 13 members of the council, along with Mayor Muriel Bowser, are on record against the initiative. The council could decide to amend the law, or could repeal it altogether before it takes effect on July 1. However, these elected officials may not be inclined to act against the will of the District's voters.

What Should Employers Do?

Washington, D.C. employers should prepare for a potential wage hike impacting their tipped employees starting July 1, assuming that the measure will take effect. You should communicate with your managers at all D.C. locations regarding the change that could soon take effect, preparing to adjust any payroll systems and compensation practices as necessary.

At the same time, you should stay aware of the potential for the measure to be amended, delayed, or outright voided before the effective date. The Washington, D.C. office of Fisher Phillips will monitor developments and provide updates as necessary.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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