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Chamber President warns ending the tipped wage would hurt businesses and employees

Thursday, July 5, 2018

Opinion: Ending the tipped wage would hurt businesses and employees

By Jessica Walker

Published in Crain's New York Business

As New York’s vibrant restaurant and hospitality industries continue to serve the city’s diverse and growing populations, the marketplace for small businesses has become ever more challenging. Activists and some imprudent restaurateurs have, in an attempt to boost wages, proposed eliminating the tipped-wage credit in New York in favor of a flat, higher minimum wage irrespective of tipped income for all servers.

Unfortunately, these misguided policies will only hurt businesses and their employees, lead to staff cuts and continue to exacerbate the pay disparity between tipped and non-tipped restaurant workers. Repealing the credit will damage the restaurant industry and hurt tipped workers most without solving the problem. Our leaders must look past this proposal and find other ways to boost pay, competition and our city’s economy.

The average hourly wage of nearly 14,000 tipped restaurant workers surveyed recently by the New York City Hospitality Alliance—including tips—was $25.34. That far exceeds both the tipped minimum (which will increase to $10 at the end of the year for employers with 11 or more staffers) and the pay of many back-of-house employees, who are legally prohibited from participating in a restaurant’s tip pool.

Kitchen workers, in fact, have little to gain from the new policy and will only see their earnings fall further behind their tipped counterparts. As restaurants struggle with new costs, many businesses may be forced to cut these workforces or decrease hours. Smarter policy would address the needs of both front- and back-of-house staff and provide restaurants with a sustainable model for future growth as costs continue to increase.

More likely than increasing wages over this threshold, however, is that eliminating the tipped credit will force restaurants to cut hours even for tipped workers, eliminate jobs they can no longer afford to pay or go out of business entirely.

The restaurant business in New York is one of exceptionally fine margins—and these job-creating engines and community staples help nobody if they cannot operate as a business at all. Large restaurant groups, including many of those who recently signed a letter to the governor in favor of the ill-advised policy, may be able to weather the changes, but mom-and-pop small businesses will certainly struggle. The proposed policy simply does not acknowledge the reality facing New York businesses.

Other states have experimented with ending the tipped wage credit and failed. Maine, for example, reversed its decision to repeal the credit after restaurant employees organized to reinstate it. Many saw a significant decrease in their earnings, and worried that restaurants would be forced to cut their hours.

This is not an easy business. Policymakers, businesses and labor groups should work together to find a solution to boost wages and with them the prospects of small businesses throughout the city. The restaurant industry is challenging for both employees and small business owners. That’s why it’s imperative to make a smart, sensible policy that works for all—not take the risk of repeal.