By Adam Pagnucco.
As I have previously written, Council Member Will Jawando has introduced a bill to eliminate the tip credit for Montgomery County’s minimum wage. The bill comes despite difficult economics in the post-pandemic restaurant industry. The ongoing phaseout of tip credits in the District of Columbia has spawned service fees and surcharges ranging up to 20% and threats by restaurants to leave D.C.
Against this backdrop, Silver Diner owner Robert Giaimo, who owns restaurants across the region, has sent testimony to the county council about his efforts to deal with D.C.’s tip credit phaseout. Giaimo makes this claim about the law’s impact on his D.C. restaurant business.
OUR BUSINESS moved from breakeven to a LOSS of $7k a month and this is only 1/3 portion of the tip elimination. When fully implemented it’s $30k a month, we and many others would be out of business.
Data I have previously published shows that as of the end of 2022, MoCo restaurants have not recovered to their pre-pandemic levels of employment, establishment count and employees per establishment. Restaurants across the region have levied sharp price increases to keep up with cost inflation and since most of them are not in D.C., most of those increases came before any government-mandated payroll increases. The council needs to consider these economics when they evaluate Jawando’s legislation.
Giaimo’s testimony, which contains details of his restaurants’ finances, is reprinted below.
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Dear Montgomery County Council,
I am writing to submit my testimony to the committee hearing on the elimination of Tip Credit.
As the founder & CEO of Silver Diner restaurants, I have restaurants in VA MD & DC & have 1st hand experience of the negative impact of eliminating the Tip Credit.
Background:
- In our downtown restaurant Server Wage increased ~$10k a month.
- Given that our DC restaurants were breakeven for the year, we had to allocate that cost somewhere to avoid losing money.
- We evaluated the option of adding Service Charges, which is what the majority of the restaurants in our marketplace did.
- After surveying DC restaurants that added service charges, we learned that guests reduced the tip by the majority of the service charge, if they normally tipped 18.5%, they reduced their tip by as much as 3.5% (avg. service charge in DC), negatively impacting servers, even when the service charge was clearly labeled that it goes to the restaurant rather than servers.
- To avoid this direct negative impact on our Servers we chose a nominal price increase instead of adding a service charge after the July implementation of tip credit elimination.
Impact:
- DC Sales dropped 20% because of customer resistance to the price increase in today’s inflationary economic times (versus seasonal drop of 9% in our other restaurants). Please see attached graph.
- Labor hours dropped 20% & remain decreased. Please see the attached graph.
- This results in a combination of lower earnings per hour, less hours for each Server and less jobs for all – ultimately by the same 20%.
Hurting Those Who You are Purporting to Help:
- Servers are earning less per hour.
- We have cut staff back in hours: less Server hours and
- Support staff hours have been reduced.
- Tipped employees lose out with the sharp decrease in hours as well as a decrease in pay failing to be offset by the increase in pay.
- All our Associates end up losers.
Customers & Growth:
- Customers are up in arms over service charges & prices and are unwilling to pay.
- We cannot do business, opening restaurants in a climate where we are losing our customer’s patronage, and our people are being hurt.
OUR BUSINESS moved from breakeven to a LOSS of $7k a month and this is only 1/3 portion of the tip elimination. When fully implemented it’s $30k a month, we and many others would be out of business. Wherever this is implemented, we could no longer afford to open restaurants as it would create an unfavorable climate to our Associates and Guests.
Regards,
Robert Giaimo
President/CEO
Founder
Silver Diner Development LLC.
https://www.silverbrands.com/