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Delaware legislature to consider tipped wage changes

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Some Delaware lawmakers are pushing to raise the minimum wage for tipped workers by nearly 270%, but restaurant owners and servers say that increase could have unintended and devastating effects on an industry still reeling from the coronavirus pandemic.

House Bill 94, sponsored by Rep. Kim Williams (D-Newport), would raise Delaware’s hourly rate for tipped workers from $2.23 to 65% of the state’s minimum wage, which is currently $9.25.

That means employers would be required to pay servers, bartenders and other tipped workers just over $6 an hour. If Delaware raises its regular minimum wage, the pay for tipped employees would also increase under the proposed bill.

“If I was a server, I wouldn’t want it,” said Steve “Monty” Montgomery, owner of the popular Starboard in Dewey Beach. “It’s cutting into what they’re making and costing the business more money. It’s kind of a double negative.”

John Kowalko

The formula in HB94 is not new to Delaware: Tipped workers had been paid a comparable percentage of the minimum wage before 1989, when lawmakers changed the hourly rate to a flat $2.23 per hour, according to the bill.

Rep. John Kowalko (D-Newark), one of the bill’s sponsors, said he believes servers, especially those who work less lucrative shifts, would be better compensated under the bill.

“Raising the hourly wage is not going to be a panacea, but it’s going to at least allow [tipped employees] to move in the proper direction of making a minimum wage,” Kowalko said. “We have to give people an opportunity to be able to be a viable part of the economy, and that means we have to give them an opportunity to have the economic circumstances to earn a living.”

Restaurateurs warn of costly impact

Ten percent of Chris Agharabi’s payroll goes to his front-of-house staff. If Delaware had raised the base rate for tipped workers to 65% of the regular minimum wage, that number would double to 20%, he said.

“That means for every five servers, there’s a good chance you’ll have one person less in the kitchen,” said Agharabi, who owns Theo’s Steakhouse and his upcoming Ava’s Pizzeria, both in Rehoboth Beach, as well as four restaurants in Maryland, where the base rate for tipped workers is $3.63.

Bob Suppies, co-owner of Rehoboth Beach restaurants The Pines and Aqua Grill, also said he’d have to consider laying off staff if the bill passes. He estimates that with just 10 servers, the increase would amount to $10,000 per month on his payroll.

“We would have to have a price increase on food to make up for front-of-house staff,” Suppies added. “We don’t pick pricing out of the air. There’s a formula in determining food cost, and the margins are already so low.”

Operators may also adopt a service charge to offset the pay increase, making customers potentially less likely to leave an additional tip.

Delaware Restaurant Association President and CEO Carrie Leishman

“Your servers won’t be too happy because they’ll be making fewer tips,” said Carrie Leishman, president of the Delaware Restaurant Association. “Just when we need to recover our workforce, we’re going to have people leaving the workforce and not returning.”

According to the U.S. Bureau of Labor Statistics, food and drink service jobs fell by more than 2.3 million between January 2020 and January 2021 (when seasonally adjusted), a nearly 19% drop.

In Delaware, two out of three restaurant workers lost their jobs between February and April 2020, according to the Delaware Restaurant Association in an August 2020 report.

The association estimates that Delaware’s restaurant and food service industry lost $1 billion in sales revenue last year, and that without “significant” support and funding, almost a third of Delaware restaurants may close due to losses incurred during the state shutdown.

“At a time when our industry has been so devastated, why would anyone want to raise restaurants’ operating costs?” Leishman said, adding that Delaware servers on average make up to three times more than the regular minimum wage. “It negates the purpose of putting people back to work.”

Congress also eyeing tipped wage

The minimum tipped wage is in the hot seat nationally as well. In January – the same month HB94 was filed – top Congressional Democrats proposed raising the federal requirement to $15 by 2025 and gradually phasing out the tip credit that allows employers to pay workers less than minimum wage.

The federal Fair Labor Standards Act sets the base pay for tipped workers at $2.13 an hour, which 16 states and Puerto Rico follow. Only seven states require businesses to pay tipped employees the regular minimum wage.

Currently, tipped workers in Delaware are guaranteed a regular minimum wage if their tips and base rate aren’t enough.

“People need to understand that restaurants are already required to make up the difference between server wage and minimum wage if the server does not make minimum wage,” Agharabi said. “All you’re doing is increasing the server’s tax burden, the restaurant’s tax burden and making things more complicated.”

Servers fight bill

Owners and advocates aren’t the only ones in the restaurant industry fighting the bill. Dewey Beach bartender Peter Briccotto says increasing the minimum wage will cause a “dangerous” perception that servers are getting a raise and are thus not as dependent on tips.

Kowalko disagreed, calling the current base pay for tipped workers “grotesque.”

“I can’t envision someone walking into a bar and saying, ‘What are you making an hour? Let me cut your tips,’” Kowalko said. “It’s just a bogus argument.”

Briccotto, who has been in the restaurant industry for more than a decade, created an online petition against HB94. Within 10 days, the petition had racked up more than 1,300 signatures, several hundred of which belonged to restaurant employees and others in the industry, Briccotto said.

“It’s not a bill that increases our wages,” Briccotto said. “They basically want to raise the amount we can be taxed on hourly. Essentially, as long as we’re making more than minimum wage, they’re collecting more taxes on our tips.”

For many in the industry, the bill signifies a blow to the tipping culture in the U.S. and what draws people to become servers in the first place.

“I care about my employees. I want them to make as much money as they possibly can, and the better service they give, the bigger the tip they get,” Montgomery said. “Why be in this business if you’re going to make a strict $12 to $15 an hour?”

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