Attachment B - Offset_Options

Attachment B: Tip Offset Options This attachment provides additional information on the impacts of each tip offset option assuming a 40-hour work week and a restaurant that employes 10 tipped workers. The line graphs project the amount of tip offset and base wage through 2031, assuming a 3% inflation rate in 2028–2031. The city’s online tip calculator may also be used to explore the impacts of different tip offset amounts, hours worked and number of tipped employees. Option 1: Retain $3.02 Tip Credit (Status Quo) The first option retains Colorado’s tip offset at $3.02. In this option: •

• • •

The base wage for tipped employees increases by a slightly higher percentage than the minimum wage. For example, in 2027, minimum wage will increase by 8%. Under this option, base wage would increase by about 10%. The ratio of base wage to minimum wage increases over time. In 2027, base wage for tipped employees would increase by $1.35, or $2,808 for the year assuming a 40-hour work week. Restaurants would not see an increase in savings from the tip offset compared to previous years. Total annual savings from the tip offset for the model restaurant would be about $62,800, which would remain the same in future years assuming the same number of tipped hours worked.

Option 1: Retain $3.02 Tip Credit (Status Quo) $25.00 $20.00 $15.57

$16.82

$19.85

$18.17

$19.28

$20.45

$18.72

$16.83

$15.15

$16.26

$17.43

$15.70

$5.58

$5.65

$5.73

$5.81

$5.90

$3.02

$3.02

$3.02

$3.02

$15.00 $10.00

$12.55

$13.80 $4.68

$5.00 $0.00

$3.02 $3.02

$3.02

$3.02

2025

2026

2027

2028 (est) 2029 (est) 2030 (est) 2031 (est)

Minimum Wage

Base Wage for Tipped Employees

Tip Offset

Maximum Tip Offset Allowed

Option 2a: Moderate Tip Offset Increase In this option, the base wage for employees and the tip offset increase at the same rate as minimum wage: by 8% in 2027 and then with CPI in the following years. In this option: • • • • •

Minimum wage and base wage increase by the same percentage every year. The ratio of base wage to minimum wage stabilizes at about 82%, regardless of the rate of inflation. In 2027, base wage for tipped employees would increase by $1.10, or about $2,300 for the year assuming a 40-hour work week. The tip offset would increase by $0.25 to $3.27. For the model restaurant, additional first-year savings from the increased tip offset would be about $5,100. Total first-year savings from the tip offset would be about $68,000 and increase slightly over time.

Option 2a: Moderate Tip Offset Increase Direct Wage for Tipped Employees Increases at Same Rate as Minimum Wage $25.00

$20.00

$19.85

$18.17

$19.28

$20.45

$18.72

$16.29

$14.90

$15.81

$16.77

$15.35

$5.58

$5.65

$5.73

$5.81

$5.90

$3.02

$3.27

$3.36

$3.46

$3.57

$3.68

2026

2027

2028 (est)

2029 (est)

2030 (est)

2031 (est)

$16.82

$15.00 $13.80 $10.00 $4.68 $5.00

$0.00 Minimum Wage

Base Wage for Tipped Employees

Tip Offset

Maximum Tip Offset Allowed

Option 2b: Higher Tip Offset This option sets the tip offset at 20% of the minimum wage (about what it was in 2025). With this option: • • • • •

The tip offset would increase by about 20% in 2027 and then by CPI in the following years. The base wage for tipped employees would increase by about 5% in 2027 and then by CPI. In 2027, base wage for tipped employees would increase by $0.74, or about $1,500 for the year assuming a 40-hour work week. The tip offset would increase by $0.61 to $3.63. For the model restaurant, additional first-year savings from the increased tip offset would be about $12,800. Total first-year savings from the tip offset would be about $75,500 and increase over time.

Option 2b: Higher Tip Offset Increase Tip Offset Equals 20% of Minimum Wage $25.00

$20.00 $15.57

$19.85

$18.17

$19.28

$20.45

$18.72

$15.88

$14.54

$15.42

$16.36

$14.97

$5.58

$5.65

$5.73

$5.81

$5.90

$3.74

$3.86

$3.97

$4.09

$16.82

$15.00

$10.00

$12.55

$13.80

$4.68 $5.00

$3.02 $3.02

$3.02

$3.63

2025

2026

2027

$0.00 2028 (est) 2029 (est) 2030 (est) 2031 (est)

Minimum Wage

Base Wage for Tipped Employees

Tip Offset

Maximum Tip Offset Allowed

Option 4: Freeze the base wage at $13.80 for up to two years This option freezes the base wage for tipped employees at the 2026 rate for up to two years, increasing the tip offset. The ordinance would sunset and the tip offset would revert to the state’s tip offset of $3.02 on January 1, 2029, unless council passed a new ordinance before January 1, 2029, with another adjustment to the tip offset. With this option: •

•

•

•

The tip offset would increase to $4.37 in 2027. In 2028, the tip offset would be influenced by the rate of inflation; at 3% inflation, the tip offset would be about $4.92. The base minimum wage for tipped employees would remain the same at $13.80 for up to two years, unless council passed a new ordinance before the sunset. If another ordinance is not passed before January 1, 2029, the base wage would increase to a rate based on inflation (estimated at $16.26 at 3% CPI). The ratio of base wage to minimum wage would be about 76% in 2027 and 74% in 2028. If another ordinance was not passed, and the tip offset reverted to $3.02 in 2029, the ratio of base wage to minimum wage would increase to about 84%. For the model restaurant, additional first-year savings from the increased tip offset would be about $28,080. Total first-year savings from the tip offset would be about $90,896. If another option was not passed, restaurants would see a decrease in savings in 2029.

Option 4: Freeze the Base Wage for Up to Two Years, Then Sunset If Another Ordinance Is Not Passed $25.00 $20.00 $15.57

$16.82

$18.72

$18.17

$15.00 $10.00

$12.55

$13.80 $4.68

$5.00 $0.00

$13.80

$13.80

$5.58

$5.65

$4.37

$4.92

$19.28

$19.85

$20.45

$16.26

$16.83

$17.43

$5.73

$5.81

$5.90

$3.02

$3.02

$3.02

$3.02 $3.02

$3.02

2025

2026

2027

2028 (est) 2029 (est) 2030 (est) 2031 (est)

Maximum Tip Offset Allowed

Minimum Wage

Base Wage for Tipped Employees

Tip Offset

Note: Dotted lines show the estimated base wage and tip offset if the ordinance sunsets on January 1, 2028. It is not possible to show estimates of the base wage and tip offset in 2029 and beyond if council adopted another ordinance.

Options Comparison The following table compares the modeled impacts to tipped workers and restaurants in 2027, assuming a 40-hour work week and a restaurant that employs 10 tipped workers. Option Annual Increase in Base Wages for Tipped Employees Above Current Base Wage of $13.80 1 $2,808 2a $2,300 2b $1,500 4 $0

Annual Increase in Savings to Restaurant Above Current Tip Offset Savings $0 $5,100 $12,800 $28,080

Total Savings to Restaurant from Tip Offset $62,800 $68,000 $75,500 $90,896