Revitalize Outdoor Dining and Safeguard Tip Credit: A Balanced Approach

The revamped outdoor dining initiative in New York City has inadvertently become an insurmountable hurdle for many small, diverse neighborhood eateries throughout the city. Due to its high costs and cumbersome bureaucracy, numerous establishments are finding it challenging to participate, leading to a cascade of unfortunate economic consequences. Small businesses are witnessing dwindling revenues, reduced worker hours, layoffs, decreased tax contributions, and fewer local outdoor dining options for patrons.

Rather than addressing these shortcomings directly, some government officials and advocacy groups are proposing a controversial new strategy: tying access to an enhanced outdoor dining program to the abolishment of the restaurant tip credit.

Under current regulations, restaurants pay tipped employees a base wage that, when combined with tips, must at least equal the standard minimum wage. This setup is referred to as the “tip credit.” It’s akin to a commission system seen in sales, where workers earn a base salary plus commission. However, in this case, the minimum wage is guaranteed, with the potential to earn significantly more through tips.

Removing the tip credit would impose substantial financial burdens that many eateries simply cannot bear. This suggestion is less about reform and more about exclusion, championed by politicians who aren’t familiar with the tight financial constraints and myriad regulations that restaurant owners face daily.

The financial ramifications of abolishing the tip credit are very real. It’s a proposal that has consistently been rejected by small business owners, tipped employees, and policy experts throughout New York due to its hefty costs—often surpassing $100,000 annually even for smaller venues. For neighborhood restaurants already operating on slim profit margins, such an increase could be catastrophic.

The consequences of removing the tip credit have been vividly illustrated in other regions. Recently, states like Massachusetts and Maine have turned down initiatives to eliminate this credit. Washington, D.C. also reversed its decision after initiating the phase-out, following widespread disruption in the local dining scene. The fallout included restaurant closures, job losses, reduced earnings for workers, increased menu prices, and confusing surcharges for diners, making eating out a more expensive affair.

Both Mayor Mamdani and City Council members have said that high costs and red tape have deterred restaurant participation in outdoor dining, contributing to a drop from more than 13,000 establishments approved during the pandemic to what may be as few as 2,500 this spring. They have rightly stated that lowering regulatory costs is essential so more mom-and-pop restaurants can participate.

Yet this new campaign suggests that, for government to reduce outdoor dining costs — which can already run into the multiple tens of thousands of dollars — restaurants must agree to absorb hundreds of thousands of dollars more each year by eliminating the tip credit. This makes no sense. It will only further reduce the number of restaurants able to offer outdoor dining, cut worker hours, and reduce the income workers earn from those shifts.

Restaurants must not have to pay more simply to access a functional, equitable program that should already exist as a baseline. And workers should not earn less because their restaurant can’t afford a politically imposed cost increase. Good government reform should expand opportunity, not create new barriers.

It is also worth noting that the leading proponent for eliminating the tip credit has worked alongside a major fast-food corporation to push for its elimination — a system full-service restaurants rely on, but the fast-food chains do not use. Removing the tip credit would hurt sit-down restaurants while giving large fast-food companies a competitive advantage. Seen through that lens, policies that raise costs and limit access to outdoor dining risk making the program more accessible to billion-dollar fast-food chains than to a neighborhood taqueria or local café.

This proposal may be good for the digital screen you order from at a fast-food restaurant, but it is bad for the New York waiter or busser who depends on wages and tips at a local establishment.

Eliminating the restaurant tip credit is a bad policy on its own. Conditioning access to a workable outdoor dining program on its elimination will cause even greater harm to small businesses, workers, and neighborhoods. These are two separate policy issues, and they should be treated as such. If government truly wants to support restaurants and workers, it must preserve the tip credit while fixing outdoor dining.

Rigie is the executive director of the NYC Hospitality Alliance, representing thousands of restaurants, bars, and nightlife venues across all five boroughs of New York City.