When Seattle politicians passed the city’s landmark minimum wage law in 2015, they almost certainly didn’t think they were about to transform the restaurant industry and shatter its traditional business model. But nearly 10 years later, a provision allowing small businesses to give tipped workers a lower base pay rate than non-tipped workers is set to expire, resulting in an effective minimum wage increase of as much as $3. And unless the City Council takes action by the end of the year, restaurant owners say the dining landscape is going to transform out of economic necessity.
These owners predict that customers will see more service fees, and more QR code ordering systems and tablets instead of human hosts. Full-service restaurants may shift to a counter service model, and nearly everyone will be raising their prices.
Brandon Pettit, who owns Delancey and Essex in Ballard and Dino’s on Capitol Hill, says that for some businesses, a $3 hike in minimum wage is an existential threat. Pettit says he knows of one Ballard restaurant that will face an additional $85,000 in labor costs next year if the minimum wage increase goes forward, pushing it into the red; currently the business is only bringing in $60,000.
“If the change forces a restaurant to be zero profit, it does force them to either do something like switch to a service charge or switch to iPads at the front of the building instead of a host, or it will force them to switch to having a robot in the kitchen,” Pettit says. “It essentially makes the current model unviable.”
Seattle restaurants are facing a fiscal cliff
Washington state, unlike most other states, has the same minimum wage for all workers whether they receive tips or not. But Seattle carved out an exception a decade ago when it passed what was then known as the $15 minimum wage law, which would gradually increase the minimum wage from what was then $9.47 per hour to $15 per hour by 2021. In order to win the support of small businesses, lawmakers worked out a compromise where employers with fewer than 500 employees could pay a lower minimum wage as long as they made up the difference with either tips or health care benefits — but that exception expires in 2025.
In 2015, this meant that the minimum wage for most employers changed to $11, but at restaurants (nearly all of which qualify as small businesses under the 500 employee exception) it was $10 for tipped workers. Both minimum wages were triggered to rise annually with inflation. At the time, the Seattle mayor’s office estimated that when the tip credit ended in 2025, minimum wage for tipped workers would rise from $17.25 to $18.13, a jump of 88 cents.
Those forecasters couldn’t have predicted the COVID-19 pandemic and the ongoing economic fallout, and the resulting inflation has far outpaced those original wage projections. The current minimum wage in Seattle is $19.97 for non-tipped workers and $17.25 for tipped workers. The city’s Office of Labor Standards hasn’t announced the 2025 minimum wage, but it’s widely anticipated that it will be well above $20, meaning restaurants could see a jump of up to $3, or maybe more.
“This is not something that the restaurants could have planned for,” says Pettit.
Supporters of the movement to eliminate the tipped minimum wage in the U.S. argue that the practice is rooted in racism and sexism, forces service workers to endure harassment, and encourages worker exploitation. But in Seattle, where the tipped minimum wage is among the highest in the country, owners say many tipped workers are often a restaurant’s most well-compensated workers. When the tipped minimum wage goes up it’s those servers who see the immediate benefit, while untipped positions such as line cook may net significantly less pay.
“There’s always been this tension between back of house and front of house,” says Patric Gabre-Kidan, who owns the Rhino Room in Capitol Hill and New Luck Toy in West Seattle. “And when we had the jump to $15 an hour, man, that’s when things really started getting sticky for everybody. That wage gap just started to take off.”
Ethan Stowell, Seattle’s most prolific restaurateur, describes the situation a decade ago like this: “You paid a server 10 bucks, and you paid a cook 20 bucks, essentially. And the server still made more money, but the cooks made more money per hour.” As servers get higher pay because of the rising minimum wage, cooks demand more money as well. “If the servers are making $20 an hour, then I gotta pay the cooks $35,” is how Stowell sums up the typical restaurateur’s dilemma. “The math is very hard without having prices go astronomical.”
Are you a restaurant worker who wants to talk about how the changing minimum wage will affect you? Drop us a line at seattle@eater.com
Service charges and other changes ahead
Ethan Stowell Restaurants has more than 500 employees and so doesn’t qualify for a tipped minimum wage; instead, staff are paid an hourly wage that’s supported by a service charge. Pettit has also abandoned tipping in favor of a service fee at Delancey, the proceeds of which are distributed among all staff working at the end of each night.
Some owners favor a service charge model because it helps reduce the inequality between front and back of house. But it can mean that servers and bartenders earn less than they would under a tipping model. And because sales tax applies to service charges and automatic gratuity but not to tips, customers wind up paying more than they would under the tipping model.
Pettit predicts that full-service restaurants — where you sit down and get handed a menu by a server — will “be all but forced to” switch to a service charge model if the minimum wage jumps $3 next year, because otherwise labor costs will eat the entirety of their profits.
But some owners are leery of that route. Many customers, for starters, are vocally anti-service fee — so much so that last year Reddit users across the country began tracking restaurants with service charges to avoid them. Charlie Anthe is the owner of Ballard’s Moshi Moshi and the president of the Seattle Restaurant Alliance, an industry advocacy group. He’s worried that service charges will soon be categorized as “junk fees” by the Federal Trade Commission and banned — as very nearly happened in California this year. So he’s looking at other options, including raising prices or finding ways to cut back on staff hours.
“Do I start putting QR codes at the tables, because that way I have fewer servers?” Anthe says. “Do I start doing more kiosk ordering? This is why you see a lot of new places in Seattle that are focusing almost entirely on counter service, because it minimizes the number of staff you have to have.”
Gabre-Kidan likewise doesn’t imagine changing the model at his bars, but he’ll have to make cuts in the event of a significant minimum wage hike. “We would have to raise prices. We would have to cut hours for staff. We would have to cut hours of operation if necessary,” he says.
Pettit says he is insulated from the effects of a minimum wage increase because Delancey already has a service charge in place. His other restaurant, Dino’s, does counter service and therefore isn’t as dependent on tips; he estimates that his labor costs there would go up by $20,000 next year if the minimum wage hike happens.
“There’s a chance that I could raise prices to cover it and still keep a tipping model,” he says. “But long-term, if the minimum wage keeps going up, the minimum wage plus tipping model is at some point going to become unviable because there just won’t be enough profit.”
The end of tipping?
Pettit and Anthe were among some restaurant owners who attended a July 30 meeting of the Seattle City Council to warn councilmembers of the impact the coming change would have on the industry. This did not go well. The majority of the people who attended the meeting were labor activists and union members who supported ending the tipped minimum wage and condemned Councilmember Joy Hollingsworth, who represents an area that includes restaurant-dense Capitol Hill, for introducing a bill that would make the two-tiered system permanent. Days later, Hollingsworth withdrew the bill and promised to hold meetings with business owners and labor groups — but with most of the rest of the Council’s 2024 calendar taken up with discussions about the city budget, it’s unclear whether city leaders will have time to pass any legislation addressing the minimum wage.
Anthe says he got negative reviews on Yelp and hostile Instagram comments in response to his appearance at the meeting; in the days afterward, a Reddit post circulated that accused restaurant owners of “whin[ing] about how they can’t possibly pay the actual minimum wage” and encouraged people to boycott those restaurants and leave bad reviews. Multiple restaurant owners declined to speak to Eater Seattle on the record about this because they worried about the blowback from the public.
“I think the restaurant industry has a bad PR problem with this kind of stuff,” says Stowell. “Every time the minimum wage goes up, there’s a group of restaurant people who say, ‘Oh my god, this is going to do so much damage.’ So the message comes across that restaurant owners don’t want to pay their employees more, which is just not the case. Restaurant owners want to make sure that their employees are all treated equally, front of house and back of the house.”
Some owners may be pushed to eliminate tipping by the rising minimum wage, but others are proactively ending the practice, like Pettit, or like Hana Yohannes of Shikorina Bakeshop, who pays her two employees $25 an hour.
“As a business owner, it’s my job to make sure my employees are making a livable wage and that they don’t have to worry about how the business is doing and how many tips are coming in,” says Yohannes. To do this, she’s had to raise her prices, then lower them when sales dropped. She’s still trying to find a balance that works for her four-year-old business, which moved to Capitol Hill earlier this year. “It’s kind of hard to get customers in the door,” she admits. “I don’t know if it’s prices or just being a new business here that has made business tougher, but it’s been tough.”
If tipping ends at full-service restaurants, prices will almost certainly go up, owners say. “Consumers are going to see a massive jump in the cost of food come January,” says one restaurant owner who didn’t want to be named due to the political controversy around the issue. “Dinner in Seattle is going to be more expensive than New York or Tokyo.”
Pettit supports eliminating tipping but is conscious of the consequences for not only restaurants, but servers and bartenders. “I’m perfectly happy removing tipping, but removing tipping will have immense effects throughout the industry,” he says. “A lot of places will go out of business, and a lot of front-of-house workers will get pay cuts, which is a problem, but a lot of back-of-house workers will get pay increases, which is a good thing. So it’s an incredibly complicated scenario.”
Stowell sounds a little more sanguine. “The model’s going to change,” he says. “It’s gonna be a little bit bumpy. It is what it is.”
