Beginning July 1, 2023, the minimum hourly wage for employees in the District of Columbia will increase from $16.00 per hour to $17.00 per hour, and the minimum hourly cash wage for tipped employees will increase from $6.00 per hour to $8.00 per hour. The District’s minimum wage for workers is now among the highest in the nation.
Increasing Minimum Cash Wages for Tipped Employees
Under the federal law and the laws of many states, an employer is allowed to count an employee’s tips toward the employer’s standard minimum wage obligation. This is called a tip credit. Employers may pay employees a subminimum wage – the minimum cash wage for tipped employees – as long as the employee’s tip earnings added to the subminimum wage equal the standard minimum wage. If not, the employer must pay the difference to ensure the tipped employee earns at least the standard minimum wage.
Last November, D.C. voters approved the District of Columbia Tip Credit Elimination Act of 2022, also known as Initiative 82. Pursuant to the Act, the District will gradually phase out the tip credit by annually increasing the minimum cash wage for tipped employees.
The first step increase was scheduled to occur on January 1, 2023, raising the minimum cash wage for tipped employees from $5.35 per hour to $6.00 per hour. However, due to a procedural issue that delayed the effective date of the law, the increase was postponed until May 1, 2023.
Two months following the initial increase, the minimum wage for tipped employees will increase again. On July 1, 2023, tipped employees’ minimum cash wage will increase from $6.00 per hour to $8.00 per hour and will continue to increase $2.00 per hour annually until July 1, 2027, at which time employers will be required to pay tipped employees the standard minimum wage.
The District now joins a handful of jurisdictions that have eliminated the tip credit. Currently, Alaska, California, Guam, Minnesota, Montana, Nevada, Oregon and Washington require employers to pay tipped workers the standard minimum wage before tips.
What does this mean for employers?
The annual minimum wage increase coupled with the elimination of the tip credit will increase labor costs for businesses. In a survey conducted by the Employment Policies Institute, 86% of restaurants think the tipped minimum wage increase will have a negative impact on their operations, and businesses are considering several options to offset the increased labor costs, such as raising menu prices (79% by 2023; 80% by 2027), reducing staff and consolidating positions (63% by 2023; 72% by 2027), and introducing automatic service charges to customers’ bills (62% by 2023; 70% by 2027).
In response to rising minimum wages, employers should:
- Review their current policies, practices, and payroll systems to ensure compliance with the current minimum wage laws and regulations.
- Replace outdated minimum wage posters.
- Plan for the increased labor costs and explore ways to offset them, such as raising prices, reducing expenses, or increasing efficiency.
- Communicate with their employees and customers about the upcoming changes and how those changes will affect them.
What does this mean for employees?
Guaranteed minimum wages are increasing for employees, which is great news. In addition, eliminating the tip credit may lead to an income that is more predictable for tipped employees and less dependent upon the generosity of strangers.
At the same time, tipped employees should be somewhat cautious. Some customers may be less generous if they believe employees are already being paid a fair wage. As a result, some tipped employees’ minimum cash wage may increase but their tips may decrease, which could potentially result in a lower overall income.
- Review their current pay statements and tips and ensure they are receiving the correct wages.
- Learn about their rights under the new laws.
- Talk with their employers about the upcoming changes and how those changes will affect their income.
- Plan ahead in case their tips decrease.
It is important to be aware of the wage law changes and to plan accordingly. While it is still too early to say what the full impact of the legal changes will be, the elimination of the tip credit is a significant change for businesses in the District that employ tipped workers. In addition, the debate over the tip credit is likely to continue as more states and cities consider raising their minimum wages.