D.C. Residents Vote to Eliminate Tip Credit

June 25, 2018

The long-anticipated vote on tipped wages culminated on June 19 in a victory for those in favor of the District of Columbia ballot measure “Initiative 77.” By a margin of 55 to 45, D.C. voters opted to eliminate the tip credit system in D.C.

If fully enacted, the law will allow D.C. to join the ranks of seven states with no tip credit: Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington state. The measure garnered significant attention in the greater D.C. area, where restaurants, tipped employees and restaurant patrons discussed the future of the tip credit in D.C.

It also has serious economic implications for the restaurant and hospitality industries in D.C. and possibly beyond.

Under the current tip credit law, D.C. employers are entitled to claim customers’ tips as partial credit toward the employer’s obligation to pay a minimum wage. For example, rather than pay a bartender $12.50 per hour (the current minimum wage in D.C., which is already scheduled to increase to $13.25 on July 1), a D.C. restaurant is permitted to pay the bartender $3.33 per hour, so long as the bartender makes up the difference ($9.17) in customer tips. (See D.C. Code § 32-1003.) This difference is called the “tip credit.” If a tipped employee does not receive gratuities sufficient to meet the minimum wage, the employer must make up the difference by paying the employee enough to reach the minimum wage.

Under Initiative 77, the tip credit eventually would be eliminated altogether, gradually requiring employers to pay tipped employees the full minimum wage. The proposal would increase the amount employers must pay tipped employees by $1.50 each year until it meets the minimum wage for all other hourly D.C. workers. While the campaign for Initiative 77 focused almost entirely on the restaurant industry, it would affect all tipped employees, including restaurant servers, bartenders, hairdressers, bellhops, valets, barbers and nail salon workers. 

Although D.C. voters approved Initiative 77, the matter is still subject to a vote by members of the D.C. Council, the majority of which has publicly expressed disapproval of the initiative. If the D.C. Council approves the measure, the bill, like all D.C. legislation, would be subject to Congress’s 30-day review. Under either step, Initiative 77 could be modified or overturned altogether.

Update: On October 2, 2018, the D.C. Council voted by a margin of 8-5 to repeal Initiative 77. It has been reported that D.C. Mayor Muriel Bower is willing to sign the repeal legislation.

For more information about the effect of Initiative 77, contact the authors of this article, or any member of the McGuireWoods labor and employment team.

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