Fight Against Tip Credit System In New York Is On and Restaurant Owners Hate It

A fight has ensued between restaurant owners, servers and customers over the removal of the “tip credit” system in New York City. Restaurant workers and people largely backed a plan to can the system that allows eateries to pay wait staff less than minimum wage. However, the restaurant owners hate the idea and overwhelmingly oppose the plan, according to a recent survey, The New York Post reported.

What is the Tip Credit system?

Currently, restaurant owners in New York can get away with paying their ‘tipped employees’ a base wage of $10.65 an hour if that wage combined with their tips is equal to or more than the standard minimum wage of $16. Here, the $5 differential is known as the “tip credit”.

However, amid growing tip fatigue among consumers, a proposed law pushed by Assemblywoman Jessica Gonzalez-Rojas (D-Queens) and Sen. Robert Jackson (D-Manhattan) aims to abolish the tip credit system and have the wait staff paid $17 an hour by 2026 if employed in NYC, Long Island, and Westchester.

The new rule will not prohibit employers from allowing restaurant gratuities, but the tip would no longer make up the difference between wages received from the restaurant and the actual minimum wage, Gonzales has clarified, according to The Post.

What do the restaurant owners think?

Restaurant owners have overwhelmingly opposed the idea with a whopping 97% of the city’s restaurants saying they were either extremely or somewhat concerned about eliminating the tip credit, according to a recent survey by the NYC Hospitality Alliance.

If the new law comes into effect, it would cost about $12,000 extra to hire a full-time tipped employee in the city, as per the report.

Thus, three-quarters of the 879 owners surveyed said that the extra cost would be shifted to the customer as they would have to increase the menu prices to offset it.

Further, two-thirds of the surveyed owners also said they’d slash their number of employees, and over half of them said they would consider closing down.

“It’s clear New York’s restaurants and bars rely upon the tip credit,” said Andrew Rigie, executive director of the NYC Hospitality Alliance in another NY Post report.

Why is a rule change for tipping needed?

The country has been suffering from what’s dubbed as ‘tiplfaltion’ or ‘tipping fatigue’ for the past couple of years. About two-thirds of Americans have developed a negative view towards tipping, thus, a change may help to reduce the bombardment of tip prompts to them.

The rise of random tipping prompts at delis, grocery stores, coffee shops, and even self-checkout systems has made customers sour altogether.

Further, the change will also allow employees to earn a fair flat wage which would also go a long way to eliminating the differential between what workers make on slower day shifts and what they make during busier night shifts.

Recently, a coffee shop named Three Pines Coffee in Salt Lake City embraced the move of eliminating tips and raising workers’ wages. The coffee shop has been successfully running the experiment which is supported by both customers and employees.