TRAVERSE CITY — Looming changes to Michigan’s minimum wage would gradually increase tipped workers’ base pay, but many restaurant waitstaff aren’t celebrating.
“None of my servers are in favor of it, and nobody in the management team or the other positions that are not tipped are in favor of it,” said Dave Denison, owner of downtown Traverse City restaurant Amical.
Denison and others are pushing back against the phaseout of what’s known as the tipped wage credit, which according to state law pegs tipped employees’ base pay to 39 percent of minimum wage. That’s set to increase over six years, starting Feb. 21, 2025, until it’s equal to the regular minimum wage, also set to increase each year to $14.97 by 2028 – and by the rate of inflation every year after.
Denison said this “changes the game,” one that encourages servers to learn their craft and earn what customers pay them for their service.
“Servers by nature are commissioned salespeople,” he said. “They’re going to do everything within their power and within their knowledge to make sure the guest is well taken care of, and they know that they’ll be rewarded for that.”
PAY CUT
The change could actually amount to a pay cut, with tipped servers often taking home far beyond the minimum wage, Denison said.
Restaurants likely will have to increase prices, cut positions or, in the worst case, close altogether.
The proposed change and uncertainties around them aren’t welcomed by an industry already rocked by pandemic shut-downs — Denison noted the industry is still contracting post-COVID.
National Restaurant Association Chairman Jeff Lobdell pointed to a survey of Michigan restaurateurs in a recent op-ed that painted a bleak picture: 40 percent of restaurants were not profitable, and as many as one in five full-service eateries could close if these wage increases go forward.
“As a restaurant owner, I understand the importance of fair wages and protecting workers,” Lobdell wrote. “However, the tip credit is not an enemy of workers; it empowers them to earn substantial incomes while providing flexibility for employers.”
Lobdell is also president of Restaurant Partners Management LLC, which owns several restaurants across the state and a few in Traverse City.
PRICE HIKES
That includes The Omelette Shoppe’s two locations, and Front Street location General Manager Melanie Whitten echoed Denison in characterizing the tipped wage system as a merit-based one.
The Omelette Shoppe would likely have to increase menu prices, which have already ticked up from rising food costs.
“I just fear that when we have to raise them more, we’re going to lose customers, and we’re going to lose our servers,” Whitten said.
Whitten has worked in restaurants since 2011, starting as a single mom in a job that gives parents more flexibility in their schedules, she said. Places like The Omelette Shop, which closes at 2 p.m., give employees a chance to attend their kids’ sporting events, or pick up extra shifts to cover surprise expenses.
“I know that I would not have been able to do what I did for my children without being able to wait tables,” she said. “It’s a potential career.”
WAGE CHANGES
Michigan’s minimum wage increased to $10.33 per hour, with tipped employees’ base wage rising to $3.93 per hour, according to the state. If an employee’s tips plus that base wage don’t equate to earning $10.33 per hour, employers must pay the difference.
But servers can earn much more than minimum wage when counting tips — Denison said the state average is more than $30 an hour, and Amical’s waitstaff typically earn $35 an hour or more.
Even in a scenario where servers earn the regular minimum wage and still get tipped, Denison said he thought that might lead customers to not tip, based on the idea that servers would be earning more than before.
Other states, including Oregon, have eliminated the tipped wage credit.
Oregon is where Shawn Lane, a manager at North Peak Brewing Company, has worked in years past.
Lane said his perception was that restaurants were doing fine while paying servers the regular minimum wage on top of their tips, and suspected the same could be true in Michigan.
“I don’t think it will do as much damage as they say,” he said.
Denison disagreed, arguing that eateries in the state likely would have to cut support positions like bussers. That could eliminate entry-level jobs that train food service newcomers who can then climb the ranks.
“There’s multiple examples of that in our restaurant, people that started as bussers in entry-level positions, who were so afraid to even talk to a guest, now are serving tables of 12 or six with knowledge and sophistication,” he said.
Plans at The Omelette Shoppe are to keep staffing as is and see what happens, Whitten said. She doesn’t want the restaurant to have to cut employees, and her biggest fear is a more automated process: customers order food on tablets or phones, then food runners shuttle dishes to tables.
Such a move would detract from the experience, not just for customers, but for waitstaff who enjoy interacting with the public, Whitten said. She’s seen diners stop in throughout the highs and lows of their lives, from celebrating a marriage to mourning a loved one.
“The reason why we’re here is because we love it,” she said. “We love the interaction with people, we love being able to serve the community. It’s our escape from our own reality just to be here.”
COURT RULINGS
At the heart of the dispute are two state Supreme Court rulings determining that Michigan lawmakers violated the state constitution in 2018 when they headed off a ballot initiative that raises the minimum wage, and gradually eliminates the gap between it and tipped workers’ base wage.
Michigan’s constitution allows lawmakers to adopt a ballot question that garnered enough signatures to be put to voters, thus keeping it off the ballot. But legislators faced heavy criticism and legal challenges when they passed, then promptly amended, the minimum-wage ballot question, keeping the tipped employee base wage at a fraction of the regular minimum wage.
Four state Supreme Court justices, led by Justice Elizabeth Welch, agreed lawmakers can amend laws adopted from petition initiatives in future sessions. But doing so in the same session — known as “adopt-and-amend” — obstructed voters’ rights to direct democracy.
CANDIDATE TAKES
“I think it’s really unfortunate that the Legislature in 2018 intervened,” state Rep. Besty Coffia, D-Traverse City, said at a recent candidate forum. “They really did do something that was unconstitutional. They should not have disrupted the ballot initiative and it’s currently kind of created a snarl that the Supreme Court has now ruled on.”
Coffia added it’s likely that lawmakers will have to intervene, and in a way that protects workers.
State Rep. John Roth, R-Interlochen, defended his predecessors’ move as sparing the state from “terrible policy.”
“I’m 100-percent behind fixing this, and fixing it by keeping the tipped wage out of it altogether,” he said at the forum.
Other candidates weighed in as well, including Lisa Trombley, a Republican candidate challenging Coffia. She agreed the gradual phaseout of the tipped wage credit had to stop, as many business owners and servers told her, and that current lawmakers need to act before it takes effect in February.
“More importantly, we need to put pressure on Gov. (Gretchen) Whitmer to ensure that whatever legislation … however it can be adjusted, it will ultimately be signed into law so it does take effect,” she said.
Cathy Albro, an independent candidate running against Roth, said she expected to hear more from service workers at some upcoming events. Albro noted her own experience as a server through college, which brought in more money than her first teacher salary after graduation. Unknowns surrounding the changes include whether servers would still get to keep tips.
“I also feel for the restaurant owners, because they have an increase that’s difficult to make up, perhaps,” she said.
THIN MARGINS
Restaurants typically have thin profit margins, Denison and Whitten both said separately. Anything that eats into that margin, Whitten said, can make it harder for a restaurant to reinvest into equipment maintenance and building upkeep.
That would further impact businesses already struggling to bring back diners after the pandemic, Denison said. Any additional costs to customers could keep away diners already cutting back their restaurant trips in the face of inflation.
“In business, customers always pay the price for everything,” he said. “That’s just the way it is.”
Denison and Whitten separately agreed the solution is simple. Both supported raising the minimum wage, but keeping the tipped wage credit as-is. Denison echoed Roth in criticizing the original ballot initiative as originating outside of Michigan, and Whitten reiterated that servers didn’t want the change to begin with.
“So we’re not opposed to raising the minimum wage, and if those slow days happen, we’re not opposed to compensating and paying our staff members minimum wage,” Whitten said. “We just want them to be able to get their tips based on how they wait tables, how they serve — again, that merit system that they’re proud to earn.”
One proposed fix would keep the tipped wage credit at 39 percent of the minimum wage, which would increase at a smaller rate to $12.05 by 2030 unless unemployment in a given year spikes beyond 8.5 percent. That’s in a bill introduced and backed by a handful of Republican state senators, which awaits a vote in the Senate’s labor committee.