Initiative 82 has forced many full-service operators cut back as costs rise.

There have been grumblings of jobs losses from Washington, D.C., restaurants in the wake of Initiative 82, which was approved in 2022 and went into place last spring. The measure, designed to eliminate the tip credit by 2027, will bring the base wage for tipped employees in line with the minimum rate for non-tipped workers. Previously, a restaurant could pay, say, a server, a lower wage and let tips cover whatever the balance might be. In the off chance that didn’t happen, the restaurant would be on the hook to bridge the gap.

This shift, however—which is beginning to unfold in other cities, like Chicago—means restaurants would need to pay tipped employees $17 an hour like everybody else. But it’s almost certain to be materially higher by 2027. Servers and bartenders in D.C. were earning (at least at the legal minimum required) base wages of just over $5 per hour. The rose to $6 in May and $8 in July. It’s headed to $10 this summer en route to the 2027 level-set.

Michael Saltsman, executive director of the Employment Policies Institute, a nonprofit research organization studying policy issues surrounding employment growth, told FSR the decision was dragging a “catastrophic impact” along with it. “What we’re living through right now is a real-world experiment in D.C.,” he said.

While it’s still early, job data released Friday by the Bureau of Labor Statistics backs Saltsman’s characterization. Between May 2023 (when I-82 went into effect) and January 2024, full-service restaurants in D.C. have cut 3,700 jobs, an alarming decline of 12.1 percent. During the same eight-month period in the previous year, D.C’s full-service segment tacked on 1,200 jobs (a 4.5 percent increase).

“Washington, D.C., is the first attempt at eliminating the tip credit in more than 20 years, and in just seven months, the city’s full-service restaurant employment has been gutted by the change,” said Sean Kennedy, EVP of public affairs for the National Restaurant Association. “The loss of 3,700 full-service jobs—more than 12 percent of the total workforce—is a lesson in economics. Higher labor costs mean higher menu prices. That means diners are eating out less and tipping less, which in turn means less income for servers and operators. What we’re learning from the D.C. experience is that eliminating the tip credit will only reduce income, choices, and opportunities. A lose-lose-lose for any community.”

MORE: How are restaurants responding to the end of the tip credit?

To Kennedy’s point, staffing levels across the rest of D.C.’s restaurant sector remained relatively steady. From May 2023 to January, employment levels edged down 400, or just 1.7 percent.

Similar statistics have surfaced through recent months. The Restaurant Association of Metropolitan Washington claims eateries in the district shuttered at a rate of roughly one per week last year. That was the highest peak since COVID-19. Federal data also revealed full-service restaurants in the area cut at least 1,300 jobs in the first six months following I-82.

It’s a matter of costs rising (such as labor) not balancing out with gains. RAMW survey data suggested 96 percent of restaurants raised menu prices, with inflation outpacing the average increase of 16 percent. Eight in 10 said they were paying more for ingredients, and food costs were averaging 23 percent higher than 2019 levels. Six in 10 added they were facing higher occupancy costs at an average uptick of 18 percent, and north of 90 percent were paying at least 25 percent more in wages.

Additionally, 75 percent of restaurants surveyed by the group last fall said they were seeing diminished income, with profitability declining by an average of 34 percent versus pre-COVID levels.

More challenges could await restaurants, too, as the Federal Trade Commission continues to examine so-labeled “junk fees” President Biden spoke of during his recent State of the Union. A rule is expected to be issued before November’s election. It could require businesses, including restaurants, to include all fees in the upfront price. The goal being to save American consumers some $20 billion and to promote competitive and transparent pricing.

D.C. issued a service fee disclosure advisory last summer.

In one example of how this has emerged, a restaurant in Chicago that’s eliminated wait staff in favor of QR codes as labor costs rise, placed a 20 percent service charge on all orders it divides across front and back of the house.

The Association’s 2024 State of the Industry report found that 16 percent of all restaurants add surcharges. That’s only up one percentage point from last year’s edition.

The FTC estimated it could cost the restaurant industry more than $3.5 billion to make this change, including almost $5,000 on average for a menu redesign at each location.


Naturally, the most common surcharges tend to be service fees like that in the Chicago instance, which are added to large party checks and in states where the tip credit was eliminated. In areas where the tip credit is no more (seven states, Washington, D.C., and Chicago in progression), lawmakers or regulators have provided rules on when and how operators can add service fees. “These situations are both well understood by diners and the surcharges in these experiences are expected,” the Association and Law Center wrote.

Feature, Labor & Employees, Legal