Restaurants would be required to directly pay tipped workers at least $6 per hour during the first year.
Following several unsuccessful attempts over the past few years, Democratic lawmakers are once again aiming to raise the federal minimum wage and eliminate the tip credit, and their latest proposal is sparking a fresh round of criticism from the restaurant industry.
Sen. Bernie Sanders and Rep. Bobby Scott introduced the Raise the Wage Act of 2023 on Tuesday. The legislation would more than double the current federal minimum wage from $7.25 to $17 per hour over five years, starting with a $2.25 increase within three months of the bill’s passage. The minimum wage would jump to $9.50 in the first year and would increase by $1.50 annually until it reaches $17 in 2028. From there, the secretary of labor would gain the power to adjust the amount annually based on changes in the cost of living.
The bill also seeks to eliminate the federal tip credit that allows gratuities to count toward wages. It would require restaurants to directly pay tipped workers at least $6 per hour during the first year. After that, the employer’s payment would steadily increase until tips are no longer factored into wages.
Lawmakers have made several attempts to enact these types of changes in the past. A $15 federal minimum wage initially was part of President Biden’s $1.9 trillion COVID-19 relief plan in 2021. After it was dropped, House Democrats introduced a bill to establish a $15 minimum wage and eliminate the tip credit. Similar legislation was introduced during the previous administration and failed to pass in the Senate on multiple occasions.
With Democrats holding a narrow majority in the Senate and Republicans controlling the House, the Raise the Wage Act of 2023 is unlikely to make it to the president’s desk. Still, opponents are raising concerns about the impact of the proposed changes on the restaurant industry, which already has boosted wages in the face of rising operating costs.
The market demand for both experienced and entry-level restaurant workers has pushed their average hourly earnings from $15.06 in May 2019 to $19.76 in May 2023, said Sean Kennedy, vice president of public affairs for the National Restaurant Association, in a statement criticizing the new bill.
“This wage growth has come at the same time that wholesale food prices shot up; rent, insurance, credit card fees, and debt climbed; and consumers started to second-guess their spending,” he said. “It’s been a challenge for restaurant operators to balance all these increases with only a 3-5 percent pre-tax margin to pull from.”
Additional wage changes should be crafted in a way that doesn’t threaten business viability or damage the economies of the communities where restaurants drive job creation and tax growth, he added.
“Eliminating the tip credit as a compensation model is a non-starter,” Kennedy said. “This would have the perverse effect of lowering the take-home pay for countless workers who have tipped restaurant jobs. Their median income is $27 an hour, far above the proposed changes, so we’ll fight for them to keep the current system of tipping and that high earning potential.”
The Employment Policies Institute, a nonprofit research organization studying employment growth, warned lawmakers that the proposal could cost as many as 1.7 million jobs. It published a report that found a $17 minimum wage would result in over 1.2 million jobs lost, while eliminating the federal tip credit would cut another 447,000 jobs. A third of those losses would be jobs held by 16-24-year-olds, 62 percent would be jobs held by women, and 60 percent would be jobs in the hospitality industry, including restaurants and bars, according to the report.
In a statement announcing the legislation, Sanders called the $7.25 an hour federal minimum a “starvation wage” and said the changes would benefit nearly 28 million workers across the country. He pointed out that if the minimum wage had increased with productivity, it would be $23 an hour today. The value of the current minimum wage also is the lowest it has been since 1956 and has declined nearly 28 percent since it was last increased in 2009. And while approximately 5 million workers depend on tips for three-quarters of their income, the tipped sub-minimum wage has remained stagnant since 1991.
“In the year 2023, a job should lift you out of poverty, not keep you in it,” Sanders said in the statement. “At a time of massive income and wealth inequality and record-breaking corporate profits, we can no longer tolerate millions of workers being unable to feed their families because they are working for totally inadequate wages.”
