No to 77
June 01, 2018
Tipped Employees Do Well and We Aren’t Greedy: Why We Oppose Initiative 77.....
There’s been a lot of talk about Initiative 77 in DC, which would allow voters to decide on raising the tipped minimum wage to $15 per hour by 2020. Minimum wage for tipped employees is currently $3.33; however this will increase to $3.89 in July and $5.00 by 2020. The Restaurant Association of Metropolitan Washington, RAMW, though opposed to this measure, did not want restaurant operators to venture into this. The RAMW feels we would come across as greedy and opposed to beleaguered workers. However, we at Eatwell DC are very concerned about this measure and the actual harm it will do to our employees. We have faith that our team will spread the message, but this is not just their battle. We cannot sit comfortably and watch from the sidelines.
EatWell DC employs well over a 150 people in DC and about 90 of those earn tips; servers, bussers and bartenders. For over 34 year we have owned operated and managed restaurants, and 22 of those years were spent here in D.C. We care deeply about the wellbeing of our entire team; from our employees to our shareholders, guests, and the community as a whole. We are not greedy restaurateurs. We spend incredible resources, both tangible (time, money and energy) and intangible (emotional support), to care for our staff and allow them a safe, dignified and living wage environment in an increasingly expensive city. We have long offered excellent and affordable health and dental care benefits as well as paid vacations, 401ks, a liberal meal policy and the ability to continue their education in hospitality and dining and grow with us professionally. We have many staff members who have been with us for well over a decade.
On the face of it, raising the tipped minimum wage from the lower tipped rate to the higher non-tipped rate sounds like a great idea that liberal and progressive societies should champion and support. Many of my own well educated yet ill informed friends think Initiative 77 is a great idea. The problem with this initiative as well as all of the misinformation that is being disseminated is that while it seems like a great idea on the surface, if examined closer, a small amount of research and actual fact checking, will show enormous pitfalls and long term (and perhaps permanent) damaging effects.
What are the real positives and negatives of Initiative 77 passing and who would it impact?
According to the proponents…….. Greedy restaurant owners are doing their utmost to keep unskilled workers wages low so they can squeeze every last penny from their poor and beleaguered crews. As stated above, the server minimum wage is $3.33. These poorly treated tipped servers would benefit greatly going from $3 or $4 an hour to $15. This is a huge raise that allows workers a steadier income and reduces the scourge of sexual harassment by awful customers dangling tip money in exchange for sometimes gratuitous favors that go well beyond reasonable customer service. Raising the tipped minimum by $11 will have no negative effect on the restaurant business and people will continue to tip and not be bothered by the higher costs, just look at San Francisco. Bad restaurant owners cheat staff of their tips and this will be eliminated. This certainly is the stuff the Restaurant Opportunities Centers United has been touting.
To this, we say BUNK!
Remember that tipped minimum wage of $3.33? Should a tipped employee not make at least the DC minimum wage per hour ($12.50 now, rising to $13.25 in July) through tips, every restaurant is required by law to insure tipped employees are paid the difference between the tipped minimum wage of $3.33 and the DC minimum wage for all other employees. There is no member of the hospitality industry in DC who makes less than minimum wage ever. As per the notice of hire that each tipped employee is required to acknowledge and sign when hired, stating….
As of July 1, 2017, the minimum wage required to be paid by any employer in the District of Columbia to any employee who receives gratuities shall be $3.33 an hour, provided that the employee actually receives gratuities in an amount at least equal to the difference between the hourly wage paid and the minimum wage. Also, all gratuities received by the employee must be retained by the employee.
We operate 5 mid-priced restaurants in DC with a large cross section of locals and tourists from all economic stations. Our average servers earn $25 per hour in tips & wages, our busser slightly less at $20 per hour and our bartenders slightly more. They also, all enjoy the full selection of aforementioned benefits.
It’s a decent living in an otherwise costly city and many of these folks might not have the opportunity to live their lives without the tipping system that’s been in place for a very long time. If the wages were to be raised dramatically, most of them would earn far less. Restaurants will be forced to add service charges or raise prices significantly; a 30% increase is our best estimate just to cover the additional cost of labor and employment taxes, which we estimate at over $275,000 per year, per restaurant. The amount is greater than the average profits we earn in any of our restaurants today. Raising prices would also force us to dissuade guest from feeling the need to tip on the higher costs of goods and will dramatically and negatively impact tipping by necessity. Right now the average server earns about 21% on the goods they serve and sell. We estimate that with this change, tips will drop significantly to 5-7% as it is in most non- tipping societies. By example, a server that has a $1000 in sales today and may go home with $200, that would likely become $105 in pay at $15 per hour for a 7 hour shift and maybe $60 in tips. Most of our servers just took a 20% pay cut and the really skilled ones significantly more. Additionally with every single dollar price increase, we lose a percentage of guests and will cause that 20% pay cut to be even larger.
Attracting skilled workers has been hard these last few years; living in DC is expensive, competition tough, unemployment for many is at record lows. Workers coming from MD and VA have always been attracted by the higher tips DC can provide. If tips are reduced or eliminated, why would they commute in or brave DC traffic and parking when they can earn far more in tips in Waldorf, MD or Arlington, VA? The best servers in the best places who earn far more than $35 an hour, why would they stay in DC when they could got to Boston, NYC, Miami or Philly and continue to make $300 to $500 per night? Service will slump, our ability to hire, which is already difficult, will become impossible, and workers will gravitate toward higher end markets and away from DC.
DC is already considered a very expensive town by locals and even more so by visitors who account for over 20 million people a year. We read every review and though Commissary is by far our least expensive restaurant we get comments that run the gamut from inexpensive to very pricey depending on people’s point of view and the cost of living in the cities which they hail from. Add 30% to that and it impacts not just Commissary but all of DC; a $12 burger just became $15.60.
Based on our long business experience, we know that this change will have a substantial negative impact on the take home pay of most tipped employees. A few people may benefit, however at an enormous cost to the vast majority. The few bad apple restaurant operators will still be bad apples, just finding a new way to cheat their employees. As for the guests that might occasionally be sexually suggestive by dangling a tip, they are asked to leave. This action is generally far more proactive than what can be done in offices and other workplaces where sexual harassment is just as rampant and goes more unchecked because it’s behind closed doors.
We as restaurateurs make huge capital investments, take enormous risks to enter a very competitive market. Sure, business is booming in DC but that has not always been the case and may not always be the case. We invest millions to enter this difficult business. Though the world thinks its all profit, we operate on very thin profit margins. We make this investment with the understanding of the basic costs, when these costs change dramatically, the entire business model changes with it and not an easy change to get past when your net is 5%.
Here’s the reality of the greedy restaurateur and what we face if these changes take place.
Increased base wages force us to raise prices. This directly impacts every consumer and visitor in DC. It makes things unnecessarily more expensive. When guests leave a $20 tip now it goes to the server. If that same $20 is incorporated as a service charge or just added to the cost of the meal, then DC Government just got a piece of the action with an already nation high 10% sales tax on what was a tip and that just cost every consumer 2% more, with no benefit to workers. Most retail businesses in DC occupy spaces owned by large and often well funded landlords, most but certainly not all. Most have a little known percentage rent deal. Meaning every dollar in sales restaurants bring in over a natural break point, we have to share with our landlords, that’s on sales and services. Raise prices significantly for whatever reason or add a service charge and JBG and other large landlords just got a 6-8% bonus from all our sales and your good intentions, millions of dollars.
Service will go downhill; servers now hard or impossible to attract will be less inclined to join the industry. Jobs will be lost. Higher prices will force full service restaurants to raise prices. Quick service restaurants will benefit at the expense of workers and full service restaurant as their business model already builds in little to no service. We in full service will be forced to devise ways to do with less workers and service will diminish as will jobs.
We start out by believing we are doing the right thing in helping to protect tipped employees by raising their wages and we end up actually hurting their wages, not necessarily making them safer, decreasing the incentive to offer good service. We also hurt our customers by adding more in cost and taxes to every meal. Restaurant management becomes more difficult if not impossible trying to attract workers all while adding millions of dollars to the pockets of landlords and then cutting jobs as we are forced to engineer more self service.
Initiative 77 is not a win; not for tipped employees, the citizens of DC, visitors or the restaurant industry.
We agree with Mayor Bowser and the majority of the city council, Vote NO on 77.
David Winer, Principal