How restaurants compensate their employees in New York City and other markets is going to change radically in the coming years. The real question is how much chaos will exist during this period and how much harm will come to workers and the restaurants that employ them.
— Erika Adams
Today, New York City hosts the last public hearing in a months-long debate that’s been simmering across the state this year. Right now, in 43 states, restaurants are allowed to pay a lesser, tipped minimum wage for workers who make some of their total income in tips. In New York City, this rate is $8.65 an hour for restaurants with 11 or more employees. The general minimum wage is $13 an hour. (By the end of the year, these amounts rise to $10 and $15, respectively.) This is referred to as the tip credit.
The credit is given under the assumption that tips will make up the gap between the tipped and general minimum wage, and if they do not, then the owner lawfully makes up the difference. For the many operators who build it into their budgets, the credit provides much-needed financial assistance in an extremely competitive environment.
Not all operators come out in favor of keeping the credit, however. 21 restaurateurs signed a letter to the governor calling for the elimination of the tip credit — though signatories include several restaurateurs whose businesses don’t use a tipped minimum wage. Originally, Crains New York reported that restaurateur Danny Meyer signed the letter, but has since corrected its story, saying his name was included by mistake.
At a New York State Restaurant Association meeting in May, the restaurateurs in attendance were up in arms over the potential fallout if the credit were eliminated and the tipped minimum wage disappeared, since they do rely on that wage break to help manage labor costs. The elimination would require a major shift in how restaurants structure their operational budgets — a shift that many owners see as a decimating blow to their businesses.
“This is literally the biggest day in restaurant history in this state since prohibition!” one owner in the meeting exclaimed. “And that’s not an understatement.”
“It’ll change the very nature of how we do business,” said another.
“How do we tell our employees to support [the tip credit]? Can we say, ‘Do this or we close?'”
There were calls for a plan, for media talking points, for a case study commissioned on how this would affect every part of the restaurant supply chain. There was talk of how to shift the tipping conversation away from sexual harassment, because, as one operator put it, “any words you use make you sound like an a**hole.”
At Sylvia’s, a 55-year-old restaurant that’s been a longstanding cornerstone of Harlem, management is grappling with the potential changes that eliminating the tip credit will bring. The restaurant’s director of operations, Taniedra McFadden, told Skift Table that raising menu prices is non-negotiable, but there’s only so far they can push it.
“We sell fried chicken and macaroni and cheese,” McFadden said. “It’s comfort food. We’re not selling a rack of lamb. We’re not a steakhouse.”
Marc Glosserman, the founder of Hill Country Hospitality, a group of barbecue restaurants in New York City and D.C., estimates that in one New York City location alone, eliminating the tip credit will increase labor costs by approximately $750,000.
“There’s a business reality to how far we can take this,” Glosserman said of the rising operational costs. “How much can we really adapt to this and make this a worthwhile business given the risk?”