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Everything You Need to Know About Prop 138: The Tipped Workers Protection Act

A group called One Fair Wage (OFW), an outside special interest group from New York and California, is pushing an initiative known as the One Fair Wage Act that would raise the minimum wage by $2 above the current Consumer Price Index (CPI) formula and eliminate the tip credit.

The Arizona Restaurant Association was successful in keeping this idea off the statewide ballot this November.

OFW, however, has committed to trying again next election cycle and offered they will target city ballots in 2025. This is why the restaurant industry and employees joined together to submit Prop. 138 to the ballot. Prop. 138, the Tipped Workers Protection Act, will preserve the tip credit while guaranteeing a higher base wage to tipped workers.

Here are a few quick facts on Prop 138:

What does Prop. 138 do? It protects the current system.

  • Changes the current stagnant $3 tip credit to 25% of the minimum wage.
  • Increases the guaranteed pay for tipped workers from minimum wage to $2 above the minimum
    wage.
  • Gives the tip credit and the tipping system constitutional protections and ensures that cities
    cannot eliminate them.

What is the Tip Credit? The Tip Credit is the backbone of our service industry payment system.

  • A tip credit is an amount of tips received by an employee that is credited to meeting the employer's minimum wage obligation.
  • In AZ, the tip credit is $3 per hour, meaning that employers may pay tipped employees $11.35 per hour instead of the current minimum wage of $14.35 per hour if tips make up the difference.

How Would Tip Credit Elimination Impact Restaurants? Restaurants would see a 44% increase in labor costs!

  • Under OFW's proposals, AZ restaurants would see labor costs for tipped workers increase by 44% almost overnight.
  • For smaller restaurants with 500 hours of tipped workers per week, that means $130,000 per year.For larger full-service restaurants with 1,800 hours of tipped workers per week, that means $468,000 per year.

What happened in places that eliminated the tip credit? No tip credit equals layoffs, closures, and reduced pay.

  • Only 7 jurisdictions in the U.S. have eliminated the tip credit. In those places we have seen near universal adoptions of service fees.
  • Restaurants in those jurisdictions have been forced to switch to counter-service, layoff employees, decrease hours, institute massive menu price increases and even close their doors.
  • For employees lucky enough to keep their jobs, they see their tip percentage go down and customers adjust for service fees and prices.

The Greater Flagstaff Chamber Board of Directors has voted to support Prop 138, and ask you to do the same. Under Flagstaff’s local wage mandate, the employee tip credit is set to expire after 2025. A Yes on 138 will permanently establish the tip credit in Flagstaff and protect our service industry workers! Vote YES On Proposition 138

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