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NY Eateries Predict Price Hikes and Job Cuts Amid Potential Tipping Overhaul

NYC restaurants are on the defensive with a new bill that would remove the tip credit.

Jill Caren
By Jill Caren
Updated February 8th, 2024

A new proposed bill to eliminate the tip credit in New York restaurants is facing fierce opposition. A staggering 97% of 879 surveyed restaurateurs were extremely concerned about the elimination of the tip credit system.

A recent survey from the NYC Hospitality Alliance reveals some significant numbers that will affect the dining landscape in the city.

  • 88% say it would be a disaster for their business.
  • 76% are considering raising menu prices.
  • 42% are contemplating doing away with tipping altogether.
  • Two-thirds expressed the possibility of reducing their workforce.
  • Over one-half are considering closing their establishments.
survey results tip credit in NYC from NYC hospitality alliance
Image credit: NYC Hospitality Alliance

Currently, NYC restaurants can pay their tipped workers $10.65 per hour. That wage plus their tips must equal or exceed the mandatory $16 per hour minimum wage. The difference of $5.35 is what is considered the tip credit.

If an employee does not make $16 per hour with their hourly rate and tips, the employer must pay the difference.

The Hospitality Alliance notes that many restaurant servers earn far more than the minimum wage. Many servers can earn $20-$40 or more per hour with tips.

It is this information that makes the removal of the tip credit system unnecessary.

The Hospitality Alliance’s report emphasized that eliminating the tip credit could substantially increase costs for restaurants and bars. This comes as they strive to recover from the aftermath of the COVID-19 pandemic and rising food costs.

The report estimated that if the tip credit is eliminated, it would cost around $12,000 more per year to employ a full-time tipped employee.

The proposed legislation to abolish the tip credit has sparked a contentious debate.

Jessica Gonzalez-Rojas, an assembly member and co-sponsor of the bill, stated she wants better for those working in the service industry.

Organizations like the Fair Wage Coalition are backing the bill. They believe the bill would address inequities among workers and help improve the restaurant worker shortage.

The potential ramifications of these changes are complex and multifaceted. On one hand, there are concerns about the financial viability of restaurants and the potential impact on employment.

On the other hand, there are valid arguments about the need to address issues of inequity, harassment and worker shortages within the industry. As these discussions unfold, it is clear that finding a balanced and sustainable solution will be crucial to ensuring the well-being of both restaurant workers and businesses.

The proposed legislation also includes provisions for a $50 million restaurant and restaurant worker recovery loan program to help cover any short-term increased costs on employers. This program aims to provide support during the transition period if the tip credit is indeed eliminated.

Washington DC implemented a similar law in 2022, with an expected full rollout by 2027. The restaurant industry in DC has been facing struggles since the tip credit elimination. A report states that 4.4% of the full-service restaurant workforce has been eliminated. Meanwhile cities outside the DC area that still have a tip credit have showing a 3% rise.

The proposed bill is still in Committee and could be many months before a decision is made.

Jill Caren is an international SEO consultant and founder of 2Dogs Media. She is also a trainer, journalist, and speaker who helps brands increase their organic search visibility, traffic, and conversions. She is also the co-founder of Blue Collar Brain, a resource for those looking to enter a trade career.

She has been featured on MSN, Wealth of Geeks, Hubspot, SEO Powersuite, and other publications for her work as an SEO and advocate for skilled trades.