D.C.’s restaurant industry has been asking for relief amid monumental changes resulting from the COVID-19 pandemic and, more recently, Initiative 82, which will increase restaurants’ labor costs. Initiative 82 began to take effect this week: The tipped wage increased 65 cents to $6 per hour May 1, and will go to $8 per hour on July 1.

Employers will have to increase the base pay of their tipped workers a dollar or two every year until 2027, when tipped workers’ base will be equal to the city’s prevailing minimum wage. (That wage, currently $16.10, increases in proportion to inflation.) Under the tipped wage system, restaurants are supposed to ensure that their workers make at least minimum wage between their base pay and tips.

The biggest change in the bills from Councilmembers Kenyan McDuffie (I-At Large) and Charles Allen (D-Ward 6) deals with service charges, automatic fees tacked on as a percentage of a customer’s total check. While the charges are becoming increasingly popular among restaurant owners looking to offset rising operating costs, they have been controversial among both workers and customers.

Both councilmembers’ bills stipulate that restaurants would not need to collect sales tax on the revenue derived from service charges — and that services charges would not be considered “sales” in commercial lease agreements that determine rent based on a business’ gross revenue.

Some bar and restaurant owners — many of which are small businesses — have called for those measures, citing outstanding debts due to pandemic closures and dried-up pandemic-era government aid. If either bill passes, service charges could become even more ubiquitous — although Allen believes that’s likely to happen regardless of legislation.

The bills are the first to offer relief as Initiative 82 goes into effect and various restaurant owners decry its effect. Both McDuffie and Allen tell DCist/WAMU they consulted with Restaurant Association Metropolitan Washington, the industry’s local lobbying arm, on their legislation, among other people affected.

McDuffie’s bill goes as far as phasing out the tipped minimum wage earlier. While Initiative 82 eliminates the tip credit by 2027, McDuffie’s bill would move that date up to July 2025. McDuffie sees the provision as striking a balance between what owners and workers desire, saying “it gets money in the hands of workers faster.” The bill does eliminate the initiative’s step increase to $10 in 2024; Tipped workers’ base wage would go from $8 to the normal minimum wage in 2025.

“The impetus is really about workers and restaurants being a priority,” says McDuffie, referencing the name of his bill. He also says the restaurant industry has been one of the most impacted industries during the pandemic, and their “revitalization” is critical to the District’s economic recovery.

Allen echoed McDuffie. “They’re hurting. They’re struggling to be able to recover from the pandemic,” Allen says of the city’s restaurants and other small businesses. “And so I want to come up with a variety of ways in which we can help those businesses recover, help them thrive in our community.”

Both bills go beyond addressing the concerns of local restaurant owners and operators, with Allen’s bill incorporating retail businesses more broadly and McDuffie’s addressing issues around food delivery apps and their contracted workers.

Here’s what McDuffie’s bill does:

• Defines service charge as a mandatory fee that goes to employees, among other things
• Excludes service charge from sales tax
• Excludes service charge from the calculation of a restaurant operator’s rent, if their commercial lease has rent tethered to sales
• Fully implements Initiative 82 by 2025
• Requires an education campaign on Initiative 82 beginning October 2023
• Bars food delivery companies from excluding a restaurant’s visibility in a customer’s search results on its platforms if they’re within four miles
• Restricts food delivery companies from reducing the availability of delivery workers to a restaurant
• Gives food delivery workers access to a restaurant’s bathroom if they are providing a service there
• Mandates the deputy mayor for planning and economic development study the working conditions of food delivery workers

Here’s what Allen’s bill does:

• Excludes service charges on food and beverages from sales tax
• Excludes service fees from the calculation of a commercial tenant’s rent, if their lease has rent tethered to sales
• Requires an education campaign on Initiative 82 no later than October 2024
• Regulates how credit card networks can charge businesses, specifically by prohibiting sales tax from being included in the swipe fee
• Increases the real estate tax credit available to small businesses from $5,000 to $10,000 and allows for year-over-year increases to match inflation
• Enabling small businesses to receive written notices of license renewals required by D.C. government
• Modifies licensing requirements for bar managers, specifically by allowing business to pay for their credentials on an annual basis instead of the required three-year basis
• Allow sexual harassment training to be done virtually for managers of tipped employees instead of only in-person

“I sat down and met with the people who run businesses,” says Allen. “I sat down and talked with people who run restaurants, people who run retail shops, and said, ‘What are some of the things you need?'”

One of the biggest difference between the two is in the definition — or lack thereof — of what “service charge” actually means. (Tips are required by federal law to go to tipped workers, whereas service charge is not defined in local or federal law and de facto goes directly to employers, who could spend the dollars any way they choose.) Both bills effectively treat service charge as tips, so businesses would not charge local sales tax on them.

McDuffie’s bill defines service charges as a fee that pays the base wages of employees, is a percentage of food and beverage that cannot exceed 22%, and cannot be applied to a party of patrons of more than 10 people. The charge must be communicated to the patron in advance of their order, either verbally, on a restaurant’s signage, or its website. A business that wants to take advantage of the tax and lease benefits would have to meet all these requirements when charging service fees.

Allen’s bill does not define service charge, because the lawmaker says he “would need a lot more information” before attempting to craft such a definition.

There also could be broader implications to creating a sales tax exemption. “If you did that, you would be basically opening the door for shenanigans,” Richard C. Auxier, a senior policy associate in the Urban-Brookings Tax Policy Center, previously told DCist/WAMU. An extreme example would be if a restaurant operator offers patrons free drinks but charges a service charge, thus getting around the consumption tax and cutting into the city’s revenue.

It’s not immediately clear how the bills will be received. Allen’s attempt to regulate food delivery has already proved challenging, with his emergency bill that offered some aid to restaurants facing pushback. McDuffie almost killed that measure Tuesday, with the at-large councilmember saying he was worried it would interfere with his bigger restaurant relief bill. The two lawmakers appeared to have struck a deal behind closed doors that helped secure the emergency food delivery bill’s passage.

McDuffie is a key lawmaker in the passage of any legislation, given that he’s the chair of the council’s business committee and would oversee hearings on the bills. He acknowledges the eagerness of colleagues who want to legislate solutions. “People understand how vital the restaurant industry is to the District’s future economic growth,” he says. “We want to make sure that we’re getting this right.” McDuffie also says he plans to engage all lawmakers, calling for a “consensus bill” that both restaurant owners and workers can get “excited” about.

Allen, who represents restaurant-rich neighborhoods like the Southwest Waterfront and H Street corridor, emphasizes that his bill is an introductory measure because it has to go through the legislative process and could change based on hearings. Already, his bill has six co-sponsors: Councilmembers Trayon White (D-Ward 8), Zachary Parker (D-Ward 5), Matt Frumin (D-Ward 3), Brooke Pinto (D-Ward 2), Brianne Nadeau (D-Ward 1), and Robert White (D-At Large).

“My hunch would be that [McDuffie would] hold a hearing on all the bills that are related to one another and then kind of take the best of both or the best of all of them and move a package forward,” Allen says.

This post has been updated to clarify that Councilmember McDuffie’s bill eliminates Initiative 82’s step increase in 2024.