Restaurant owners brace for impact when wages for tipped workers change

Capital News Service

Michigan restaurateurs have growing concerns about how the state minimum wage and overtime law will change tipped employee’s pay scheme when the current system is officially phased out on Feb. 21, 2029. 

One, Ali Alkasti, the owner and head cook of Sahara Delight in Lansing, said he worries about the amount of work hours it will take to comply.

“It’s really tough in downtown Lansing. Here I come in at 6 a.m. and have to leave at 7 p.m.,” said Alkasti. “I work seven days a week just to keep it running.”

“Everything is so expensive. I really hope (legislators) do something,” he said. 

The tip credit system is how most restaurants traditionally relied on paying servers and bartenders by using tips in calculating their earnings. That meant those tipped workers earned more than the minimum wage of $3.93 per hour.

Under the new legislation, the changes are dictated by the rate of inflation beginning on Feb. 21, 2025, according to the Michigan Restaurant and Lodging Association. That includes an increase in the base rate for tipped employees to $5.95 an hour.

The ultimate goal is to phase out tips credits by 2029. 

Brian Calley, the president and CEO of the Small Business Association of Michigan, says the business model on how restaurants operate will be dramatically changed.

“Restaurant owners are concerned with the viability of remaining in business when those changes happen,” said Calley.

“The first strategy is to ask legislators to maintain some form of tipped credit, and not require every sit-down restaurant to scrap its whole business model and essentially start over,” he said.

Melissa Krause, a manager and server at Bubba’s restaurant in Traverse City, said she understands why the legislation is in place but doesn’t agree with it. 

“We don’t like it,” Krause said. “ We have people here that rely on those tips to beat the minimum wage.”

According to the National Restaurant Association, eliminating the tip credit would force restaurant operators to raise prices and reduce the hours employees can work or cut jobs entirely.

Some restaurant customers don’t sound concerned about the potential hike in menu prices.

Among them is Sara Claybaugh, a patron of Kelly’s Irish Pub in Lansing, who said she thinks it’s part of the cost of doing business.

“I’m all right with paying higher prices,” Claybaugh said. “I think it’s important to support our small businesses, even if their services might be more expensive.”