Matters Memo

City of Boulder City Council Agenda Item Meeting Date: April 2, 2026

Agenda Title Exploring Our New Authority to Modify the Tip Offset: Policy Options

Staff Contact • •

Meghan Wilson Outcalt, Water Quality Senior Manager, Utilities Department Mark Woulf, Assistant City Manager

Executive Summary The purpose of this memo is to provide background information and data on the tip offset and present conceptual options for council’s consideration and feedback. State legislation (HB25-1208) passed in 2025 allows jurisdictions with a higher minimum wage than the State’s minimum wage to adopt an ordinance that increases the local tip offset, as long as the resulting base wage for tipped employees1 is not less than the State’s base wage. In line with the city’s goals to support economic vibrancy, businesses, and a diverse workforce, City Council would like to explore this authority and determine whether to modify the city’s tip offset beginning in 2027.

Questions for Council 

Does council have any questions or feedback about the data and information presented?

1 Base wage for tipped employees is calculated as the applicable minimum wage less the tip offset.

While sometimes referred to as “tipped minimum wage,” staff refers to this as the “base wage” for tipped employees for clarity.

 

Which of the options would council members like staff to explore further? Are there any options that can be taken off the table? Does council support the proposed timeline and engagement approach?

Alignment with City Plans and City Council History Sustainability, Equity and Resilience (SER) Framework and Citywide Strategic Plan Alignment SER Framework Goal Area Economically Vital Citywide Strategic Plan Strategy 14. Enhance collaborative efforts to support an inclusive, healthy, sustainable, and resilient local economy that builds on core economic strengths, promotes economic mobility, and aligns with community values and priorities. Staff Notes This project is not directly reflected in the Citywide Strategic Plan but was identified as a 2026 council priority.

Alignment with Additional City Plans This project aligns with the recently updated Economic Vitality Strategic Plan, which calls for broader support of small businesses, especially related to operating costs and workforce development. This project implicates the broader goals stated within the city’s Racial Equity Plan. Specific results from staff’s racial equity analysis are described in the Equity Analysis section below.

City Council History The city played a leadership role in a multi-year regional effort to explore increasing the minimum wage. The full minimum wage report, including a comprehensive economic analysis and results from extensive community engagement, is available here: August 2024 Minimum Wage Update Memo In October 2024, the City Council voted to increase the local minimum wage in Boulder by 8% each year in 2025, 2026, and 2027 and by the consumer price index (CPI) thereafter.3 When the council voted on this issue, the city did not have the authority to

3 Boulder Revised Code (B.R.C.) 1981 Section 12-6-3.

adjust the tip offset. The memo from the October 10, 2024, meeting is available here: October 2024 Local Minimum Wage Public Hearing Memo In 2025, the Council Intergovernmental Affairs Committee, composed of four council members, provided feedback on HB25-1208 and recommended a “support” position on the final legislation. Some individual council members voiced a desire to oppose the legislation. The full council did not consider the issue or legislation at a study session or regular business meeting in 2025. City Council decided at the 2026 Council Retreat to designate this project as one of five priorities for the 2026 one-year City Council term, with a stated goal to make a decision by June 2026 to allow ample time for restaurant owners and employees to plan for 2027.

Analysis Staff have reviewed existing sources of data and information, outlined below, to provide context for council’s discussion. Additionally, staff have identified four conceptual options for council consideration and feedback. The decision to modify the tip offset impacts both employers and employees of the restaurant industry, as well as the greater community. At the same time, staff recognize that modifying the tip offset will not solve all of the challenges workers and restaurants face. The information in this memo is limited to the policy decision of whether to modify the tip offset and does not contemplate other policies to support the business community and workforce. Background In Colorado, food and beverage service employers (shortened to “restaurants” in this memo for simplicity) can pay tipped employees up to $3.02 per hour5 less than the minimum wage. This amount, called the tip offset or tip credit, is codified in the state’s constitution and corresponding statutes and does not change over time. In the City of Boulder, where the current minimum wage is currently $16.82, employers must pay tipped employees at least $13.80 in base wages. If an employee does not earn at least $3.02 in tips, the employer must cover the difference in the employee’s paycheck. In other words, all employees, including those who earn tips, are required to make at least minimum wage. Additional federal and state laws apply to the tip offset and employers of tipped employees:

5 Unless otherwise noted, all dollar amounts in this memo refer to hourly rates.

•

• •

To qualify as a “tipped employee” that may be subject to the tip offset, a worker must make at least $1.64 per hour in tips and cannot spend more than 20% of their time doing non-tipped work. Employers cannot pay tipped employees less than the base wage (currently $13.80 in Boulder), no matter how much the employees earn in tips. Tips may be pooled only among tipped employees (excluding managers). If an employer chooses to require tip-sharing among all employees, the employer cannot take the tip offset.

In 2025, a new Colorado law was passed (HB25-1208) that allows jurisdictions with a higher minimum wage than the state’s minimum wage to increase their allowed tip offset, as long as the resulting base wage for tipped employees does not fall below the state’s base wage, which currently is $12.14. National Context Tip offsets have a long history in the United States, described further in the Equity Analysis section below. Prior to the 1966 Fair Labor Standards Act, restaurant workers and some other service workers, who were predominantly Black, were excluded from minimum wage requirements. In 1966, Congress created the tip offset, which allowed employers to pay tipped employees 50% of minimum wage. Today, the federal minimum wage is $7.25, and the federal base wage for tipped employees is $2.13— about 30% of minimum wage and the same as it has been since 1991. Seventeen states adhere to the federal base wage for tipped employees. Seven states have outlawed tip offsets altogether, requiring all employers to pay minimum wage regardless of tips. Some states, like Colorado, use a static dollar amount for the tip offset, while others apply a percentage of minimum wage. Currently, Colorado has the ninth highest base wage for tipped employees in the country. Regional Context Within Colorado, four jurisdictions have a higher minimum wage than the state’s minimum wage. The table on the following page shows the 2026 minimum wage, tip offset and resulting base wage for tipped employees for these four jurisdictions as well as the State of Colorado.

Table 1: Minimum Wage, Tip Offset and Base Wage for Tipped Employees in Colorado Jurisdiction Minimum Wage Tip Offset Base Wage for Tipped Employees State of Colorado $15.16 $3.02 $12.14 City of Boulder $16.82 $3.02 $13.80 Boulder County

$16.82

$3.02

$13.80

City/County of Denver City of Edgewater

$19.29

$3.02

$16.27

$18.17

$4.67

$13.50

The City of Edgewater passed an ordinance in late 2025 that increased the tip offset for 2026, leaving the base wage for tipped employees the same as in 2025. The ordinance sunsets at the end of 2026, and the tip offset will revert to $3.02, unless the City Council passes a new ordinance. According to Edgewater’s website, this approach gave the city time to develop a long-term approach that balances fair wages with the realities facing their business community. Boulder County is not currently considering an increase to the tip offset. At least one council member in Denver has expressed interest in modifying the tip offset, but as of this writing, there have been no formal proposals. Other Boulder County municipalities cannot increase the tip offset, because they have not enacted and are not currently contemplating enacting a local minimum wage. Restaurant Overview Boulder’s restaurant industry brought in the third-highest amount of sales tax revenue to the city in 2025 (about $18 million) compared to other industries. According to data provided by the Boulder Chamber, the restaurant industry employs about 8,900 workers, representing about 8.5% of city jobs. According to the 2026 Colorado Business Economic Outlook, restaurants face several challenges, including increased costs in labor, food, rent and other expenses, as well as declining sales volume and new regulations. These challenges are echoed in the recently published 2025 State of Denver Restaurants report, which compiled information from national datasets, as well as surveys and interviews with restaurant operators and hospitality brokers. Both reports cite narrowing profit margins; the Denver report concludes that the industry is facing “structural contraction, rather than recovery” (p. 1). Data available for Boulder indicates that these challenges exist here, too. While there was rapid growth in the industry immediately following the COVID-19 pandemic, growth

is slowing, as indicated by stagnant and declining sales tax revenue in 2024 and 2025, shown in Figure 1: Figure 1: Total Tax Revenue Over Time: Restaurants in the City of Boulder Total Tax Revenue Over Time: Restaurants in the City of Boulder $21,000,000 $19,000,000 $17,000,000

16%

$15,000,000

7%

0%

2023

2024

-4%

37%

$13,000,000 $11,000,000

-37%

$9,000,000 $7,000,000 $5,000,000

2019

2020

2021

2022

2025

In Boulder, minimum wage and the base wage for tipped employees increased by 40% and 55%, respectively, from 2019 to 2025.7 Commercial rents in Boulder are on average higher than the Denver metro area ($26.04 per square foot compared to $20.85, according to data from CBRE Econometric Advisors). In the Denver metro area, food inflation has been higher than “all items” inflation since 2022. As cited in the 2026 Colorado Business Economic Outlook, 80% of restaurant operators in the state have reported raising menu prices in response to increasing costs. This trend is reflected in the Denver-area inflation rate for food away from home (i.e., at restaurants), which continues to exceed inflation for both all items and food items. Tipped Employee Overview According to Colorado Department of Labor and Employment (CDLE) data, restaurant workers earn some of the lowest wages in the state. Pay varies widely across job categories and within some categories. For example, dishwashers’ wages are lower and have less variation than other types of restaurant jobs. Bartenders and waitstaff— typically positions that earn tips—have a much wider range of wages than other

7 2019–2025 is the time period used to illustrate minimum wage increases in the Denver report (page 12).

positions. The following chart depicts 2024 wages in Boulder County9 for a sample of restaurant positions at different percentiles across the range of wages: Figure 2: 2024 Restaurant Employees’ Hourly Wage by Percentile in Boulder County

--- = 2024 min. wage $14.42

Importantly, although wage potential is high for bartenders and waitstaff, the median wage is only a few dollars above minimum wage. As the state’s minimum wage has increased, and the tip offset has remained static, the base wage for tipped employees has become a higher percentage of the minimum wage. In the graph on the following page (Figure 3), each bar represents the minimum wage for that year, broken out by base wage and tip offset amount. The percentages represent the ratio of base wage to the overall minimum wage.

9 Although staff attempted to find city-level data where possible, some statistics were only available at the

county level.

Figure 3: Base Wages for Tipped Employees Over Time in the City of Boulder

Additional information on restaurant workers is provided in the Equity Analysis section below. Tip Offset Options The following options are presented as concepts for City Council’s consideration, feedback and further direction. In all options, consistent with Boulder’s local minimum wage law, the city’s minimum wage increases by 8% in 2027 and in subsequent years by an amount corresponding to the prior year increase in the Denver-Aurora-Lakewood Consumer Price Index (CPI). The tip offset and corresponding base wage for tipped employees change in each option. To illustrate the impacts of each option over time, staff assumed 3% CPI for years 2028 and beyond. Staff also modeled a restaurant that employs 10 full-time tipped employees to illustrate the impacts to both restaurants and tipped workers in 2027.

Option 1: Retain $3.02 Tip Offset (Status Quo) The first option retains Colorado’s tip offset at $3.02.

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

$16.82

$15.00 $10.00

$13.80 $4.68

$19.28

$19.85

$20.45

$18.17

$18.72

$16.26

$16.83

$17.43

$15.15

$15.70

$5.58

$5.65

$5.73

$5.81

$5.90

2027

2028 (est)

2029 (est)

2030 (est)

2031 (est)

$5.00 $0.00

2026

Minimum Wage

Base Wage for Tipped Employees

Tip Offset

Maximum Tip Offset Allowed

The following are impacts of Option 1: Tipped employees: • • •

The base wage increases by a slightly higher percentage than the minimum wage—for example, by 10% and 8%, respectively, in 2027. In 2027, the base wage for tipped employees increases by $1.35, or $2,808 for the year assuming a 40-hour work week. The ratio of base wage to minimum wage increases over time.

Restaurants: • • •

The tip offset remains the same over time. There is no increase in savings from the tip offset compared to previous years. Total annual savings from the current tip offset for the model restaurant are about $68,000.

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

Option 2a: Moderate Tip Offset Increase Direct Wage for Tipped Employees Increases at Same Rate as Minimum Wage $25.00 $20.00

$19.28

$19.85

$20.45

$18.17

$18.72

$14.90

$15.35

$15.81

$16.29

$16.77

$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 $10.00

$13.80 $4.68

$5.00 $0.00

Minimum Wage

Base Wage for Tipped Employees

Tip Offset

Maximum Tip Offset Allowed

The following are impacts of Option 2a: Tipped employees: • • •

The base wage for tipped employees and minimum wage increase at the same rate every year. In 2027, the base wage for tipped employees increases by $1.10, or about $2,300 for the year assuming a 40-hour work week. The ratio of base wage to minimum wage stabilizes at about 82%.

Restaurants: • •

The tip offset increases by $0.25 in the first year and then gradually over time. For the model restaurant, additional first-year savings (compared to the status quo) from the increased tip offset is about $5,100.

With option 2a, council could explore keeping the base wage for tipped employees at $13.80 in 2027, thereby increasing the tip offset to $4.37, and then increasing the base wage in subsequent years at the same rate as minimum wage. Option 2b: Higher Tip Offset Increase This option sets the tip offset at 20% of the minimum wage (it is currently at about 18% in Boulder).

Option 2b: Higher Tip Offset Increase Tip Offset Equals 20% of Minimum Wage $25.00 $20.00

$19.28

$19.85

$20.45

$18.17

$18.72

$14.54

$14.97

$15.42

$15.88

$16.36

$5.58

$5.65

$5.73

$5.81

$5.90

$3.02

$3.63

$3.74

$3.86

$3.97

$4.09

2026

2027

2028 (est)

2029 (est)

2030 (est)

2031 (est)

$16.82

$15.00 $10.00

$13.80 $4.68

$5.00 $0.00

Minimum Wage

Base Wage for Tipped Employees

Tip Offset

Maximum Tip Offset Allowed

The following are impacts of Option 2b: Tipped employees: • • •

The base wage increases by a lower percentage than minimum wage in 2027 and then by CPI in the following years. In 2027, the base wage for tipped employees increases by $0.74, or about $1,500 for the year assuming a 40-hour work week. The ratio of base wage to minimum wage remains at a constant 80%.

Restaurants: • •

The tip offset increases by $0.62 in 2027 and then by CPI in the following years. For the model restaurant, additional first-year savings from the increased tip offset is about $12,800.

Option 3: Maximize Tip Offset This option sets the tip offset at the maximum amount allowed by the state beginning in 2027.

Option 3: Maximize Tip Offset $25.00

$20.00

$16.82

$19.85

$20.45

$18.17

$18.72

$19.28

$13.55

$14.04

$14.55

$12.59

$13.06

$5.58

$5.65

$5.73

$5.81

$5.90

2027

2028 (est)

2029 (est)

2030 (est)

2031 (est)

$15.00 $13.80 $10.00 $4.68 $5.00

$0.00

2026

Minimum Wage

Base Wage for Tipped Employees

Tip Offset

Maximum Tip Offset Allowed

The following are impacts of option 3: Tipped employees: • • •

The base wage decreases in 2027, after which it increases by CPI. In 2027, base wage for tipped employees decreases by $1.21, or about $2,500 for the first year assuming a 40-hour work week. The ratio of base wage to minimum wage is about 70% in 2027 and increases gradually over time.

Restaurants: •

The tip offset increases by $2.56 in 2027 and then by CPI.

•

For the model restaurant, additional first-year savings from the increased tip offset is about $53,000.

Options Comparison The following table compares the modeled impacts to tipped workers and restaurants in 2027 for the different options. Option Base Wage Impact to Tipped Workers in 2027 1 $2,808 increase 2a $2,300 increase 2b $1,500 increase 3 $2,500 decrease

Increase in Savings to Restaurant in 2027 $0 $5,100 $12,800 $53,000

Total Savings to Restaurant in 2027 $62,800 $68,000 $75,500 $116,000

Anticipated Fiscal and Workplan Impacts Impacts to the city’s workplan are not expected as a result of a change to the tip offset. Adjustments to the tip offset and related communications and processes would be made at the same time as the annual minimum wage increase. Staff also do not anticipate a significant increase in enforcement.

Equity Analysis Staff conducted a preliminary equity analysis to examine who may benefit and who may be negatively impacted by increasing the tip offset. In the post-Civil War era, service industry workers were often Black and paid low or no wages by their employers, instead relying on customer tips for income. According to scholars studying poverty and inequality, this legacy continues today, as, nationally, people of color are overrepresented in tipped jobs and experience higher rates of poverty. Inequities are exacerbated in parts of the country where the base wage for tipped employees remains at or near $2.13. In Boulder County, as in the rest of the United States, people of color and women are generally overrepresented in the restaurant industry (this data is not currently available for the City of Boulder or for specific jobs). Restaurant employees are some of the lowest paid workers overall. According to a 2022 report by the Colorado Fiscal Institute, the accommodations and food services industry accounts for about 30% of wage theft violations in the state. People of color and women are more likely to experience wage theft than white people and men. Any increase to the tip offset could negatively impact tipped employees’ future wages, potentially with a disproportionate impact on people of color and women, given overall

demographics in the restaurant industry. If the tip offset increases, but the base wage for tipped employees remains above what it is now (such as with Option 2(a) or 2(b)), some tipped employees would see slower growth in wages. If the tip offset increases such that the base wage for tipped employees falls below what it is today (for example, Option C), some tipped employees could see a decrease in wages, at least in the first year of implementation. These impacts will vary depending on whether restaurants take the tip offset, how much they actually pay their employees and whether employees’ tips offset any decrease in base wage. If the tip offset is increased, restaurants, including minority-owned and small businesses, could see a decrease in direct labor costs in future years. With tight profit margins, an increase to the tip offset would likely benefit small businesses more than larger chain restaurants. Because of the challenges facing restaurants, increasing the tip offset may help some restaurants stay in business or employ more people, which would in turn offer continued or additional employment opportunities. Increasing the tip offset may allow employers to increase pay for back-of-house staff, such as dishwashers and cooks, which would in turn benefit those employees who are traditionally lower earners. It may also slow the increase in menu prices, thereby benefiting the greater community. As described in the background section of this memo, all employees, including tipped employees, are legally required to earn minimum wage. The 2024 minimum wage ordinance, which applies to tipped employees, was intended to address the cost of living in Boulder and inequities, including racial and gender wage gaps. Boulder’s higher minimum wage could mitigate the effects of an increase to the tip offset, especially paired with enhanced education, in multiple languages, on how the tip offset works, the rights of employees, and where and how to safely file a wage complaint. Each of the options presented will have varying impacts on people of color and women, including both workers and business owners. Racial equity will continue to be analyzed as options are narrowed and brought forward for consideration.

Climate, Resilience, and Sustainability Considerations No direct climate impacts are anticipated from either keeping the status quo or changing the tip offset.

Community Engagement Staff have reviewed results of the city’s 2024 minimum wage community engagement effort to inform this analysis. While the community and business questionnaires did not explicitly ask about the tip offset, the results suggest clear points of view from both restaurant workers and restaurant owners:

•

•

In the community questionnaire, 24 out of 216 respondents (11%) were restaurant workers. About 84% of those 24 respondents supported increasing the city’s minimum wage. In the business survey, 32 out of 131 respondents (24%) were restaurant owners. Only about 15% of those 32 respondents supported increasing the city’s minimum wage.

Restaurant employees reported mixed feelings about raising the minimum wage. On the positive side, they cited increased opportunities and a greater ability to pay for necessities. Negative feedback included concerns about higher inflation and impacts to small and local businesses. Most restaurant owners reported negative feelings about increasing the minimum wage, citing the need to increase prices for customers, higher inflation and negative impacts to small and local businesses. Some restaurant owners reported mixed reactions, with some support for a higher wage for workers. Testimony provided during the HB25-1208 hearings last year, including some from Boulder community members, echoed these perspectives, with groups representing business interests largely supporting the bill and labor groups largely opposing an increase to the tip offset. Given limited time and the availability of existing feedback, following the April 2 council meeting, staff plan to conduct targeted community engagement at the consult level on the engagement spectrum and will primarily focus on workers and businesses. Staff plan to launch an online questionnaire to receive input on tip offset options and considerations, as well as a moderated online forum to accept open-ended questions and comments. Staff plan to disseminate the opportunity to provide input through existing networks, including labor and industry groups, and to post signs with a QR code in business areas to reach tipped employees. The information gathered from community engagement will be presented in the next council meeting on this topic.

Next Steps for City Council The current anticipated next step is for a Public Hearing and consideration of an ordinance to enact a local tip offset on June 18.

Digital Accessibility The City of Boulder is committed to digital accessibility. Some content may not be fully accessible due to technical limitations or issues. For alternate formats or accommodations, please visit Accessibility | City of Boulder or contact accessibility@bouldercolorado.gov.