D.C.'s Initiative 82 will bring service fees and menu hikes

D.C. diners will notice higher menu prices and service charges as Initiative 82 takes effect in just a few months.

Why it matters: The law creates a fundamental shift in how tipped workers get paid and diners' reactions could forever change the tipping culture in D.C.

Catch up quick: Tipped workers in D.C. currently make $5.35 per hour before tips. That’ll increase gradually over the next four years, starting with an increase to $6 in May and $8 in July. By 2027, employers will have to pay tipped workers the same minimum wage as any other hourly D.C. worker.

State of play: There’s little recent precedent in the U.S. for how to implement a law like I-82, leaving D.C. restaurant owners to guess at how customers will respond to the changes. 

• Restaurant owners and staff are concerned that tipped workers will make less overall if diners decrease tips due to price increases and fees. 

Threat level: Smaller mom-and-pop restaurants are expected to feel the largest financial impact from the new law, putting them at greater risk of closing.

D.C. restaurant owner Louie Hankins tells Axios that diners should expect different I-82 strategies based on the type of restaurant.

• He plans to use QR codes instead of a cashier for takeout at taco spot Rito Loco. His rooftop bar El Techo will add a 4% service fee and increase menu prices over time. Price increases are also coming to the upscale Italian restaurant Quattro Osteria.

Hankins says he’s worried about the D.C. restaurant scene losing its personality if small restaurants like his go out of business. 

• “You’re just going to be left with these big chain restaurants that can afford this increase in labor." 

Logan Tavern and Commissary owner David Winer tells Axios that he’s opposed to service charges and will instead increase menu prices in an effort to be more transparent. He also plans to add a note to the menu saying tips are appreciated but not expected.

• The longtime restaurateur noted that the increases won’t mean more money in his pocket. “Our bottom line … is probably tighter than it’s ever been,” he says.

Winer says local customers will understand that I-82 is leading to price increases but he’s worried that tourists — which make up about 30% of his business — will be hit with sticker shock. 

The other side: Owners of high-end spots likely won’t feel as much of a financial blow from I-82, at least not at first, since many already pay their tipped workers more than $5.35 per hour. These restaurants are least likely to reduce staff since fine dining requires top-notch hospitality. 

Yes, but: Some restaurants won’t be impacted by the change. New French-Canadian disco and bistro Le Mont Royal opened last month in Adams Morgan with a 22% service charge that owner Chas Jefferson tells Axios goes directly to staff. 

• He says the service charge, which is disclosed on the menu, hasn't led to any customer complaints and that tipping isn't necessary but nice to do.
• Twenty percent of the service charge goes to front-of-house staff and 2% goes to back-of-house. As a result, Jefferson tells Axios that the majority of his employees make more than double D.C.’s minimum wage.

What we're watching: The Restaurant Association of Metropolitan Washington is pushing for reforms that could ease I-82's financial burden, such as making service charges tax-free. The association is also working to reform the city's liquor liability insurance policies, which would save business owners money.