How eliminating tip credit could affect Michigan restaurants

MARQUETTE, Mich. (WLUC) - The Michigan Supreme Court will come to a decision this summer on whether to keep or eliminate the Michigan tip credit.

The tip credit allows businesses to pay tipped employees at 38% of the state minimum wage.

The Michigan Restaurant & Lodging Association said Michigan restaurants are struggling right now, and that eliminating the tip credit would be catastrophic for Michigan’s economy.

The MRLA shared data today about the status of the Michigan Restaurants. The organization surveyed more than 200 of its member operators.

MRLA President and CEO Justin Winslow said the organization found that Michigan could lose 20% of its restaurants in the next year if the tip credit is eliminated.

“One in five full-service restaurants, according to this survey, said they will just close their doors forever. They’re barely profitable if they are at all profitable right now,” Winslow said. “If you are going to eliminate the tip credit, that will increase wages for those tipped employees 250% overnight. That is catastrophic.”

Winslow said even with the tip credit, Michigan restaurants are already struggling. He said three out of four are less profitable than they were a year ago, and 40% are not profitable at all right now.

Winslow said inflation is currently the biggest challenge for restaurant operators, and there’s only one way to keep up with it.

“Restaurant operators are saying, on average, they would raise prices another 25%. If you were looking for a way to guarantee profitability goes down and traffic goes away, that’s a great way to do it,” Winslow said. “But there’s almost no existing tool for a restaurant operator that is trying to stay in business still to do other than a dramatic menu price increase.”

In Marquette, Iron Bay Restaurant & Drinkery Owner and General Manager Andrew Hillary said the tip credit should be removed, but thinks it should happen over time.

“It’s kind of an archaic way of doing things, and it hasn’t changed with how the world is changing around it,” Hillary said. “It doesn’t really serve the staff, the employees, the people who live in a city at all. It only serves ownership to make more money.”

Hillary said it’s a complex issue with an equally complex solution and agrees getting rid of it too quickly would be hard on restaurants.

“I’m in favor of getting rid of it someday. Like, in a decade,” Hillary added. “But it’s going to take a long time for restaurants across the board to kind of figure out how it works without that system.”

Winslow said the ruling should be announced in the next 30 to 45 days.