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Restaurant disaster or worker boon? Tipped minimum wage debate has dominated Lansing [1]

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Date: 2025-02-16  

The fate of Michigan’s tipped minimum wage has dominated the debate in Lansing ahead of Feb. 21 when a Michigan Supreme Court order raising servers’ pay takes effect.

The restaurant industry applauded a bipartisan vote in the Michigan Senate Thursday to preserve a lower tipped minimum wage.

For Erin Vilella, her job as a server at the Peppermill Cafe where she has worked for more than 10 years on the west side of Grand Rapids has its perks. She's part of a tight-knit staff of servers, and working at a restaurant known for its breakfast allows her to take shifts bartending at night.

But the 41-year-old from Grand Rapids has joined many Michigan servers in expressing concern about a court order that, if the Michigan Legislature doesn't intervene to stop, will begin to phase out the state's lower minimum wage for tipped workers beginning Feb. 21.

For Vilella, Michigan's current tipping system has worked.

"I have been there at the Peppermill alone for 10 years, and we have never had a new hire on the service floor," Vilella said. "(That's) because of the money we make, and we can afford our lives doing it."

The restaurant industry has lobbied to preserve the tipped minimum wage, predicting job losses and business closures if lawmakers let the court order take effect. But organizers of the initial effort to eliminate the tipped minimum wage argue workers like servers and bartenders find themselves at the mercy of patrons' generosity to ensure they take home adequate pay.

Lawmakers appear headed toward a bipartisan deal, motivated in large part by the restaurant lobby's claims of a looming economic catastrophe. A brewing legislative compromise would raise the regular minimum wage and increase the tipped minimum wage from 38% to 50% of it by 2031.The state's restaurant association celebrated the vote on the proposal in the Michigan Senate on Thursday night while labor groups blasted it as a slap in the face to tipped workers.

Proponents of the Michigan Supreme Court order want it to take effect Feb. 21, when it will gradually increase the tipped minimum wage until it's phased out entirely in 2030.

With the deadline looming and the stakes high, Michigan could remain among the states with a lower tipped minimum wage or become the first state in decades to eliminate it. Minimum wage experts interviewed by the Detroit Free Press don't anticipate the severe economic fallout forecast by the restaurant industry. They said Michigan servers could end up taking home more money from tips and might stay at their jobs longer, with wage increases expected to reduce industry turnover.

"Tips are great if you're a server in an upscale, high-end restaurant on a weekend," said Michael Reich, chair of the Center on Wage and Employment Dynamics at the Institute for Research on Labor and Employment of the University of California at Berkeley. "Even then, if the weather is bad, tips will be smaller. Tips do not provide an adequate or reliable source of income for most servers."

A patchwork of state policies

Most states have one minimum wage for workers who don't earn tips and a lower minimum wage for those who do. If customers' tips don't close that gap, the employer pays the difference. In Michigan, the current minimum wage is $10.56 and the tipped minimum wage is $4.01. The customer is expected to make up that $6.55 shortfall with their tips.

At the federal level, the tipped minimum wage has stood frozen at $2.13 since 1991, even amid increases to the federal minimum wage.

States have their own patchwork of policies in place. While in some states, workers receive the federal minimum wage, Michigan is among those with both a higher minimum wage and tipped minimum wage than federal law.

The battle over tips dominating Lansing marks the latest phase in a fight that began years ago in Michigan.

In 2018, the Michigan One Fair Wage campaign collected signatures to put a proposal on the ballot to raise the minimum wage and eliminate the tipped minimum wage. But voters never had a chance to weigh in on the issue. Republican lawmakers circumvented a statewide vote by adopting the proposal before the general election. And then, after the election, they watered down the minimum wage changes, leaving intact a tipped minimum wage at 38% of the regular minimum wage.

The lengthy legal dispute that followed ended with a Michigan Supreme Court decision in July 2024 calling GOP lawmakers' "adopt and amend" maneuver illegal and ordering the original minimum wage proposal to take effect starting Feb. 21. The 4-3 ruling fell along party lines with Democratic-nominated justices in the majority and GOP-nominated justices dissenting.

Seven states don't have a lower minimum wage for tipped workers. "So the idea that you need to have a subminimum wage to begin with is clearly not true," said Sylvia Allegretto, a senior economist at the Center for Economic and Policy Research, a Washington, D.C.-based research organization.

Republican lawmakers in Michigan uniformly oppose the tipped minimum wage changes from the state Supreme Court. Every GOP House lawmaker stormed out of the chamber in a December protest to force Democrats to vote to preserve the tipped minimum wage. When they took control of the chamber in January, Republicans made keeping Michigan's tipping system intact a top priority.

More:Michigan Senate passes bill watering down court-ordered changes to tipped minimum wage

Democrats, meanwhile, are divided. Some sided with their GOP colleagues, voting on legislation to preserve the status quo. Others took up a compromise offer Thursday from House Speaker Matt Hall, R-Richland Township, to increase the tipped minimum wage to 50% of the regular minimum wage. But many Democratic lawmakers want to see the tipped minimum wage eliminated altogether.

It's a position shared by some of their biggest political allies in the labor movement.

Michigan AFL-CIO President Ron Bieber rallied advocates for eliminating the tipped minimum wage in Detroit last month, noting the rapidly approaching implementation date for the court order and blasting lawmakers trying to stop it. "And to get this close to the finish line after all this time — six years — you did what you were supposed to do. You took it to the courts and the courts made a decision. And now for them to pull this (expletive) and again — pull some shenanigans — and try and take this away from working people at the last minute is just unconscionable. It's despicable and it’s wrong," Bieber said at the time.

And some restaurant workers favor eliminating the tipped minimum wage, too.

"Living wages help us all live better," said Kathleen Ginnard, of Livonia, who told lawmakers at a recent Senate hearing she had more than 10 years of serving experience in restaurants in different states.

Restaurant industry to see biggest impact

No publicly available data exists on the exact number of Michigan workers earning the tipped minimum wage. There were about 85,000 servers and bartenders in Michigan in 2023, according to the Michigan Center for Data and Analytics.

Most full-service restaurants in Michigan use the tipped minimum wage for servers, according to Michigan Restaurant and Lodging Association Vice President of Communications and Brand Strategy Emily Daunt.

If Michigan implements the court order, it will join seven states without a tipped minimum wage: Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington. In those states, restaurant waitstaff earn the same minimum wage as workers in other industries, plus whatever customers tip.

Roy Rodgers, the owner and general manager of Lyon's Pub in Minneapolis, noted there were efforts to establish a tipped minimum wage for certain workers there but city council instead voted to establish a flat, $15 minimum wage in 2017.

Rodgers, who said he has held every restaurant job from bussing tables to his current role in ownership, said the rise in minimum wage has led to workers taking home more money. But it also meant many restaurants raised menu prices to account for higher payrolls, he said.

Some cities in the U.S. — Chicago, Flagstaff, Arizona, and Washington, D.C. — have begun to phase out their tipped minimum wage. But the last statewide vote to do so failed. In the 2024 election, about 64% of Massachusetts voters rejected a ballot measure that proposed eliminating the tipped minimum wage.

Allegretto, from the Center for Economic and Policy Research, refers to the tipping model used in most states as a two-tiered system in which customers' tips are a wage subsidy to the employer. It's an outlier internationally, she said. The tipping system in the U.S. has its origins in the period following the Civil War when formerly enslaved Black service workers received tips as their primary payment.

On Thursday, the Michigan Senate passed a bill that would move the tipped minimum wage to 50% of the standard minimum wage in a bipartisan vote. Though their party controls the chamber, most Democratic lawmakers voted against it. Gov. Gretchen Whitmer hasn't weighed in on that plan but has called for legislative action on the tipped minimum wage.

"We are closely monitoring the legislation. We are glad progress is being made and are hopeful for even more," Whitmer Press Secretary Stacey LaRouche said in a statement Friday.

The compromise on the table wouldn't bring the tipped minimum wage to where it has stood in the past. Historically, the tipped minimum wage in Michigan was much closer to the regular minimum wage. Starting in the late 1960s, it stood at 75% of the minimum wage. Lawmakers froze it in 1997 at $2.65, which amounted to about 50% of the minimum wage at the time.

But would eliminating it spell disaster?

The Michigan Restaurant and Lodging Association has described the Feb. 21 court-ordered changes to the minimum wage as an "avoidable crisis" that will increase menu prices, lead restaurants to shutter across the state and cause jobs in the food service industry to disappear. Servers who joined the association’s Save MI Tips campaign have testified to state lawmakers they fear customers will cut back on tips. On Thursday, the association and its Save MI Tips campaign applauded the Michigan Senate for voting to preserve a tipped minimum wage.

Minimum wage researchers expect restaurants to pass on the increase in labor costs associated with a hike in the minimum wage to customers in the form of higher prices.

But will customers keep tipping?

Data shows people tip more in states with a bigger gap between the tipped minimum wage and regular minimum wage, said Michael Lynn, a professor of consumer behavior and marketing at the Cornell Peter and Stephanie School of Hotel Administration who has written extensively on tipping. "The less servers are paid, the more people feel obliged to be generous," he said. But customers still tip in states where servers receive a higher pay, he said.

Data from the restaurant software company Toast doesn't show a big disparity in tipping rates between states with a tipped minimum wage and those without one. For the period covering Jan. 1, 2024, to March 31, 2024, customers tipped on average about 19% in the seven states without a tipped minimum wage and about 20% everywhere else, the Toast data shows.

Sean Egan, deputy director of labor for the Michigan Department of Labor and Economic Opportunity, recently highlighted the data to a panel of lawmakers debating minimum wage legislation. "Tipping behavior seems to stay around that line, regardless of what they’re making," Egan said Feb. 12. "The way we tip is more of a cultural behavior than it is related to wages."

Allegretto, the economist from the Center for Economic and Policy Research, said servers could end up earning more money from tips if menu prices increase because customers often tip on a percentage of the bill.

Proponents of the current tipping system fear customers won't dine out if menu prices increase. Experts don't anticipate the industry will implode and say it's unlikely customers will be pushed to a restaurant's competitor.

"People can't just switch to other restaurants and get lower prices because every restaurant’s doing this," said, Nirupama Rao, assistant professor of business economics and public policy at the Ross School of Business at the University of Michigan. "It's easier to raise prices when it’s a common cost shock."

Rao's research has found that worker retention rises when the minimum wage goes up.

The annual restaurant turnover rate averaged about 80% over a decade going back to 2013, according to a Toast analysis of Bureau of Labor Statistics data. Less turnover at restaurants could save businesses the money they currently spend on recruitment and training, experts said.

"This process has its limits, if the minimum wage gets too high. But we haven't reached that point yet," said Reich from the University of California at Berkeley.

Mitten Brewing Company co-owner Chris Andrus has feared the impact of the full elimination of the tipped minimum wage on his microbrewery and restaurant locations across the state. He noted the company's servers already average well above $15 an hour.

"None of us have a problem with a higher minimum wage," he said. But he said restaurants should have the ability to use customers' tips to reach it. Andrus likened phasing out Michigan's tipped minimum wage that the court put on the table after a period of high inflation to "pouring gasoline" on cost pressures already confronting the restaurant industry.

During a legislative hearing on Michigan's tipped minimum wage, Andrus pointed to Washington, D.C. as providing an example of what might happen in Michigan. After voters in the nation's capital approved a ballot measure, the first tipped wage increase took effect in May 2023.

Shawn Townsend, CEO of the Restaurant Association of Metropolitan Washington, described mixed results for servers and cuts to servers' hours.

"Quite frankly, they've had to rethink their entire business model," he said of restaurants in the city.

What’s next?

At the start of this year's legislative session when bills from Republican and Democratic lawmakers watering down the court's tipped minimum wage order were among the first introduced, some Democrats said they wanted to see what happens if the order takes effect. "My prediction is that the world is not going to end," said state Sen. Stephanie Chang, D-Detroit.

Chang joined most of her Democratic colleagues in the Michigan Senate Thursday night in voting against the bill to make the tipped minimum wage 50% of the regular minimum wage.

Lawmakers in the Michigan House would still need to vote on the legislation to send it to Whitmer's desk. Lawmakers continue to negotiate pending changes to Michigan's paid sick leave policies, also set to change Feb. 21 due to the Michigan Supreme Court order. While GOP legislative leaders heralded the Senate vote on the tipped minimum wage as a bipartisan compromise, they stressed they're looking for a deal on paid sick leave, too.

If lawmakers do stop the court-ordered changes from taking effect, there may be another course on the menu. One Fair Wage — a national group advocating for the elimination of the tipped minimum wage — has floated gathering signatures for a voter referendum on minimum wage changes.

If that happens, Michigan voters could ultimately be the ones to decide.

(This story was updated to correct a photo caption.)

Contact Clara Hendrickson: chendrickson@freepress.com or 313-296-5743. Contact Arpan Lobo: alobo@freepress.com.

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