Jul 24, 2023 - Business

Initiative 82 service fees are popping up in D.C.

Mi Vida. Photo: Scott Suchman/The Washington Post/Getty Images

The backlash was swift against D.C. Mexican restaurant Mi Vida after owners instituted a 3.5% "Initiative 82 fee" this month, with some diners and online vocalists swearing off the swanky spot.

Why it matters: Initiative 82 fees are popping up on restaurant checks around the city, heightening tensions between patrons — some confused or angered by yet another service charge — and business owners hit hard by the new law.

Catch up quick: Last year, D.C. voters overwhelmingly passed I-82, which changes the way tipped workers get paid, phasing out a system used in most places around the country, including Virginia and Maryland.

  • Before it was enacted, servers and bartenders in D.C. made a minimum of $5.35 an hour before tips, and employers made up the difference if they fell short of the city's minimum wage (currently $17 an hour).

How it works: I-82 raises the minimum wage for tipped workers, gradually increasing what employers are required to pay to be in line with D.C.'s minimum wage for non-tipped workers by 2027.

Yes, but: The D.C. Council passed emergency legislation earlier this year postponing I-82 increases from going into effect until May so businesses could prepare.

  • The first increase was to $6, and then $8 this month — a nearly 50% jump that jolted some to implement the new fees.

What they're saying: "We think that the public should see the impact of their decision," says Mi Vida's Jason Berry, whose company Knead Hospitality + Design just rolled out I-82 fees across its eight full-service D.C. restaurants.

  • "You voted for this. Here's what it costs to do it. You're going to pay for it. I'm not, because you know what? I don't want to go out of business. And if I start taking 3% away from my sales everywhere I go, I'm not going to make it."

Knead employs roughly 1,000 workers, around half tipped. "Just an incremental change in the tip minimum wage is an enormous expense," he adds.

  • "We are not making any money off this [I-82 fee], it's just to make us whole."

Between the lines: Automatic service charges are different from discretionary customer tips, which must legally go to the server. Restaurants can use service fees for whatever they want — in the best cases, higher wages and perks like health insurance — but it's not always clear.

  • The D.C. Attorney General recently cracked down on murky fees, saying they must be "prominently, clearly, and accurately disclosed" before customers place orders.

By the numbers: More than 150 D.C. restaurants have adopted service fees in the wake of I-82, according to Restaurant Business. Like others, I-82 charges vary.

Zoom in: Queen’s English, for example, instituted a 6.5% version at their intimate upscale spot in Columbia Heights — a temporary measure they say helps provide equitable wages for staff.

  • Co-owner Henji Cheung says customers are understanding since their I-82 fee is spelled out. "The service fee is not a replacement for tips," the restaurant says on its website. "Tipping a suggested 14-18% is still a vital part of compensation for our staff during this transition."
  • "Tipping culture is so ingrained in American dining culture, it's left to us to redefine it now," Cheung adds. "Unfortunately every restaurant has their own challenges. This one-size-fits-all mentality doesn't work."

What we're watching: Lawmakers and the Restaurant Association of Metropolitan Washington — previously an I-82 opponent — are looking for solutions.

  • A new restaurant relief bill put before the D.C. Council in June proposes speeding up I-82's timeline to raise the minimum wage to $17 by 2025 — essentially ripping the Band-Aid to help restaurants move forward faster and more seamlessly. It would also clarify service charges to go to employees' wages.

The bottom line: For some restaurateurs, it's too little — or too much — too late.

  • "I'm not opening any more restaurants in D.C.," says Barry, whose Knead group has been one of the fastest-growing hospitality companies in the pandemic era. "The city is no longer welcoming to small businesses."

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