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Guest column: Ending restaurants’ tip credit could cost jobs, close eateries and bars

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Guest column: Ending restaurants’ tip credit could cost jobs, close eateries and bars

Rebekah Paxton
 |  Worcester Telegram & Gazette

State Sen. Cindy Friedman said she was “confused” about employees and local restaurateurs’ opposition to a proposed ballot measure to eliminate Massachusetts’s tip credit.

Allow me to clear up the confusion: The same policy is currently stifling income for servers and bartenders and endangering local restaurant survival in Washington, D.C. As someone who grew up in Groton, I don’t want to see this misguided proposal hurt my home state.

Tip credit elimination has been pushed around the country for years and has proven to slash tips, cut jobs and put restaurants out of business. Despite servers’ and bartenders’ opposition, Massachusetts legislators are currently faced with a measure that would more than double the current minimum wage for tipped restaurant employees, with the potential to send it to voters as a ballot question in November. If passed, it could threaten the livelihoods and jobs of thousands, like the same policy is doing right now in Washington, D.C. 

Massachusetts servers and bartenders by law must earn at least the minimum wage. Tipped employees earn at least a base wage of $6.75 per hour plus tips. State and federal laws require that if tips do not put employees’ earnings at or above the $15 minimum wage, restaurant employers must make up the difference. This difference is called a tip credit.

Eliminating this tip credit puts those tip earnings at serious risk. The current system encourages tipping, which provides lucrative income for servers and bartenders that generally surpasses the regular hourly minimum wage. A recent survey of hundreds of Massachusetts tipped restaurant employees found the vast majority are earning more: Over half of local servers and bartenders earn $30 per hour or more because of their tips. 

To answer Sen. Friedman, in places that have tried tip credit elimination, those high earnings significantly decline. Look to the nation’s capital: Washington, D.C., began eliminating its tip credit in May 2023. One year after the measure took effect, D.C. servers and bartenders have reported fewer tips in their pockets and lower take-home pay. One server even reported taking home half of what he made before the new law took place: from $160 a night to as low as $80. 

It’s not hard to see why. In less than a year of tipped wage hikes in the district, restaurants are implementing service charges that are upending customers’ tipping habits, consumers are eating out less, and high labor costs have given rise to automation. The same process is playing out in places like California and Washington, which have eliminated their tip credits and have the lowest average tipping percentages in the country.

In the case of Massachusetts, economists from Miami and Trinity universities estimate a $15 minimum wage with no tip credit could cost the state over 8,000 jobs and $29 million in employees’ lost earnings. It’s a bitter pill to swallow. 

Rising operational costs are another high hurdle for Massachusetts restaurants to clear. As inflation looms and other operational costs remain high, similar policies have forced many eateries to close their doors, taking job opportunities with them. According to a Harvard Business School study, for every dollar the tipped wage increases, the likelihood of a restaurant closing increases by 14%. In D.C., the rate of restaurant closures last year was the highest it has been since the pandemic.

For restaurants operating on razor-thin profit margins, eliminating the tipped wage could be the final nail in the coffin. Owners and staff know this; that’s why tipped restaurant employees have successfully rallied against similar proposals to eliminate the tip credit in New York, Maine and Maryland — and most recently in Portland, Maine and Prince George’s and Montgomery counties in Maryland.

The proposed measure in Massachusetts is being imported from other states that have left employees and restaurants worse off. State lawmakers have a unique opportunity to bring attention to the real-time consequences of this measure before it reaches the ballot in November. If not, an entire industry’s livelihoods will be at risk. 

Rebekah Paxton is the research director of the Employment Policies Institute, in Arlington, Virginia, and a former resident of Groton.

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