On November 8, 2022, Washington, D.C. voters approved Initiative 82, which will eliminate the ability of employers in the city to rely on a tip credit to meet the minimum wage requirement for employees who regularly receive tips.  Once certified and implemented, the District will join seven other states that have eliminated the tip-credit system, including Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington state, with still more jurisdictions considering similar proposals. 

Under current District law, much like federal law and that of most other states, employers can rely on tips paid by customers to satisfy a portion of the minimum wage requirement for employees who customarily and regularly receive more than $30 per month in tips.  Currently, the “cash wage” portion of the District minimum wage that must be paid directly by the employer is $5.35, with the remainder of the $16.10 minimum wage eligible to be satisfied through tips from customers.  This difference of $10.75 is called the “tip credit.”  The employee must actually receive sufficient tips to make up the difference between the cash wage and the minimum wage.

Employers of tipped employees in the District will need to prepare to revamp their wage structures to comply with the new Initiative. Initiative 82 will eliminate the ability to take advantage of the tip credit and pay a reduced cash wage by July 1, 2027.  The Initiative does this by rapidly increasing the minimum cash wage until it achieves parity with the generally-applicable minimum wage.  At that point, employers will no longer be permitted to use the tip credit to meet the minimum wage.  Initiative 82’s staged increases are scheduled as follows:

• January 1, 2023:              $6.00 per hour

• July 1, 2023:                     $8.00 per hour

• July 1, 2024:                     $10.00 per hour

• July 1, 2025:                     $12.00 per hour

• July 1, 2026:                     $14.00 per hour

• July 1, 2027:                     Same as minimum wage

Employers of tipped employees will be in for an immediate shock as the Initiative’s pair of 2023 increases will raise the cash wage that employers must pay to tipped employees by approximately 50% within less than a year after the Initiative’s passage.  Notably, the District’s minimum wage is tied to inflation, so by 2027, it could be higher than the current $16.10 per hour level. 

Initiative 82 also opens the door for employers to implement mandatory tip pooling arrangements that include non-tipped employees beginning in 2026.  For example, at a restaurant, this type of arrangement may require servers to split their tips with back-of-house employees like cooks or dishwashers.  Federal law sets forth requirements for such tip-pooling arrangements, which have been the subject of considerable litigation, so employers should consult counsel before requiring employees to pool their tips.

Initiative 82 applies to all workers who receive tips, including restaurant servers, bartenders, hairdressers and barbers, nail salon workers, valets, and other hospitality workers. An almost identical initiative, Initiative 77, was approved by voters in 2018 but was subsequently repealed by the District’s Council. This time around, however, reports indicate that a majority of the Council is likely to uphold the voters’ decision and implement Initiative 82.  Employers with tipped employees in the District should prepare for the effects of the decreasing and eventually eliminated tip credit. 

Caitlyn Stollings also contributed to this article.