On its surface, ballot Question 5 seems like a win for tipped workers. Voting yes supports the gradual pay increase of tipped employees until it meets the state minimum wage in 2029. Tipping is still permitted in addition to the minimum wage.
But, like an iceberg, what’s below the surface can prove damaging.
Restaurants don’t exist in a vacuum, they’re especially vulnerable to economic pressures such as inflation and increases in the costs of doing business. Profit margins are notoriously thin.
Inflation hit the industry especially hard. Restaurants raised prices to offset the rising cost of food and supplies, and consumers responded by cutting back on dining out.
According to the Ipsos Consumer Tracker , about a third of Americans say they’ve cut back on fast food, sit-downs, and delivery alike since the start of this year. Nearly half say they’ve been cooking dinner more at home over the same period, while 38% say the same about lunch. Sit-down chains are among the hardest hit.
As it stands in Massachusetts, tipped workers must be paid a minimum of $6.75 per hour provided that their tips bring them up to at least $15 per hour. If the total hourly rate for the employee including tips does not equal $15 at the end of the shift, the employer must make up the difference, according to the state’s web site.
In an ideal world, inflation would be low, restaurants would be flush with cash to pay workers a minimum wage or higher, profit margins would be high, and consumers would be able to dine out as often as they like and tip with abandon. But that’s not our reality.
Michelle Korsmo, chief executive officer of the National Restaurant Association, explained to Bloomberg that a higher base wage will force restaurants to raise prices, which would in turn repel customers and potentially lead to fewer and lower tips.
As CNBC reported last year, unlike other small businesses, it can be hard for restaurants to absorb or pass on price increases. A survey by CorCom Inc. found that after Washington, D.C. began phasing out the tip credit, hundreds of restaurant owners imposed a mandatory service charge on customer checks to account for rising costs.
As the Herald reported, Doug Bacon, the head of Red Paint Hospitality Group, argued in a State House hearing in March that the minimum wage in Massachusetts will eventually hit $20 an hour in five years.
“I can tell you with 100% certainty that no operator can absorb a 200% increase in the cost of having a server or a bartender. So we’re going to raise our prices or change our staffing and our business model,” he said.
If inflation pushed consumers to cut back on dining out, a rise in prices due to increased labor costs will likely have the same effect. Tipping is allowed under a minimum wage law, but will cost-conscious diners add gratuities on top of a bill made higher because of their server’s pay hike? The days of generous tips are numbered for all but the high rollers.
Negative fallout from a yes vote on Question 5 is inevitable: Higher prices, restaurants eliminating shifts or cutting jobs to deal with increased costs, and consumers watching their wallets.
The Herald endorses a No vote on Question 5.
