Changes in Tipped Wage Laws Will Devastate Michigan Restaurants, Local Business Owners Say

An Uncertain Future for Michigan’s Hospitality Workers

Restaurant owners in Michigan are warning that recent amendments to the state’s tipped wage laws could have a devastating impact on their businesses, potentially translating into higher prices for customers and decreased take-home pay for employed staff.

A recent verdict passed by the state’s Supreme Court is set to both incrementally increase Michigan’s minimum wage and gradually phase out the current tipped minimum wage over the next several years. The intent is to replace this system with a flat minimum wage for restaurant servers and bartenders, who typically derive most of their earnings from tips. The changes to the laws are scheduled to take effect from Feb. 21, 2025.

Under these novel regulations, wages for tipped workers will increase from $3.93 to roughly $6 next year, and they would be completely phased out by 2029.

The Controversy Over the New Wage Laws

Proponents of the changes argue that by eliminating tipped wages, over 125,000 tipped workers within Michigan’s bustling hospitality industry can anticipate more stable earnings. However, many restaurant owners have expressed apprehension that the obligation to pay higher wages may force them to escalate menu prices, reduce employee hours, or potentially lay off staff or shut down business permanently.

Co-owner of Long Road Distillers, Jon O’Connor, expressed concern that the elimination of tipped wages will cause a significant hike in the restaurant’s labor expenses, thereby necessitating a recalibration of pricing models. This, inevitably, will trigger an increase in prices on the customer’s bill.

The Impact of Inflation

O’Connor expressed anxiety over the impact of raised prices on an already fragile restaurant industry, citing recent challenges posed by inflation and the ongoing pandemic. He expressed concerns of a visible reduction in customers due to higher meal costs.

A disturbing possibility emerging from the impact of increased labor costs is the potential for a more automated restaurant experience, with more reliance on technology like QR codes and ordering kiosks, as stated by Jeff Lobdell, founder and president of Restaurant Partners Management.

Likely Impact on Restaurant Workers

Lobdell highlighted that ultimately, it’s the restaurant workers who will primarily feel the impact of the new wage laws. Smaller, local restaurants unable to significantly raise their menu prices to balance the heightened labor costs will, unfortunately, resort to staff cuts, causing an existential crisis for the hospitality industry workers.

A recent survey from the Michigan Restaurant and Lodging Association suggested that up to two-thirds of restaurant operators may be compelled to lay off employees, potentially culminating in a loss of between 40,000 to 60,000 jobs. Furthermore, approximately 94% of operators would likely raise menu prices by an average of 25%, while roughly 20% of full-service restaurants could be facing permanent closure as a result of these changes.

Repercussions of the Michigan Supreme Court Ruling

Apart from the wage alterations, the state Supreme Court also reinstated new paid sick leave laws this week, necessitating that businesses provide a certain amount of paid sick leave for their employees depending on the size of its workforce. Many business owners criticize this decision, arguing that it will obligate employers to meticulously scrutinize and monitor their employees’ time off to meet the mandate.

Looking Forward

With the legal battle over these new laws likely to continue, Michigan’s restaurants, workers and customers do seem to be entering a period of uncertainty and change. The consequences of these legal changes are still yet to unfold, and the full impact on Michigan’s hospitality industry is still yet to be seen.