Politicians and advocacy groups have spent years debating what restaurant workers should earn. That debate is not going away. But I think we have spent so much time arguing over the hourly wage that we have avoided a more fundamental question:
What kind of restaurant compensation system do we actually want?
Whether you love tipping or hate it, most American full-service restaurants still operate under a tipping model.
This issue is by no means unique to Colorado. However, because I live in Colorado and serve as a Board Member of the Mile High Chapter of the Colorado Restaurant Association, Colorado seemed like a particularly relevant and appropriate focus.
Restaurants pay servers and bartenders an hourly wage, while customers provide a significant portion of their compensation through gratuities.
The alternative, common in other parts of the world, is a higher employer-paid wage with little or no expectation of tipping. Restaurants build those labor costs into menu prices or service charges, and customers pay the price they see on the menu.
I can understand the argument for either model. What I have a harder time understanding is our attempt to operate both at the same time. We increasingly expect restaurants to pay tipped employees something approaching the regular minimum wage while maintaining a culture where customers are still expected to leave another 20% to 25% on the check.
At some point, we have to pick a lane.
Denver Trying to Operate Two Compensation Systems at Once
Denver restaurants increasingly find themselves caught between these two systems. Customers still expect to tip. In fact, the expectation seems stronger than ever. At the same time, Denver continues increasing the amount restaurants must pay tipped workers before the customer leaves a single dollar in gratuity.
For 2026, Denver’s minimum wage is $19.29 per hour. A qualifying tipped food-and-beverage worker must receive at least $16.27 per hour directly from the employer because Denver uses a $3.02 tip credit. Colorado’s statewide tipped minimum wage, by comparison, is $12.14. That means a Denver restaurant must pay its tipped employees $4.13 more per hour than a restaurant operating under Colorado’s statewide minimum. And that is before tips.
This matters because labor costs do not exist in isolation. If a server earns $16.27 per hour from the restaurant and another $20 to $40 per hour from customers, the restaurant still has cooks, dishwashers, hosts, prep workers, managers, and other employees whose wages must remain competitive. Wage compression works its way through the entire payroll.
A cook making $20 per hour is naturally going to look across the kitchen at a server earning $16.27 plus another $30 per hour in tips and ask whether his compensation reflects the value of his work. That is not an argument that the server makes too much. Good servers and bartenders can be extraordinarily valuable employees, and I have no problem with them making good money. It is simply an economic reality that ripples throughout the restaurant.
And Denver restaurants have remarkably little room for error.
A 2026 report on the state of Denver’s restaurant industry found that restaurant labor costs increased roughly 50% to 55% between 2019 and 2024. According to Axios, the report concluded that operating a restaurant in Denver now costs more than operating one in New York City. The report went so far as to recommend reducing Denver’s tipped minimum wage to Colorado’s statewide level of $12.14.
That recommendation has predictably generated pushback. For example, Sap Sua owner Ni Nguyen argued that cutting workers’ wages does not save restaurants and suggested some owners simply want to pay employees less. That is a fair argument to have. But it does not answer the underlying economic problem identified in the report: labor costs have increased dramatically, and restaurants still have to find the money somewhere.
The national numbers reinforce the point. According to the National Restaurant Association’s nationwide operating data, full-service restaurants reported median pre-tax income of only 2.8% of sales in 2024. Think about that for a moment.
At a 2.8% margin, a restaurant doing $1 million in annual sales earns only $28,000 before taxes. That is not a typo. A restaurant can look busy every Friday and Saturday night, employ dozens of people, serve thousands of customers, generate $1 million in revenue, and still produce less pre-tax income than many of its employees earn in a year.
The National Restaurant Association also estimates that total restaurant expenses increased about 36% between 2019 and 2026. Forty-two percent of operators reported that their restaurant was not profitable in 2025. That is why I struggle when policymakers talk as though restaurants can simply “absorb” another labor-cost increase.
Absorb it with what?
The Tip Credit No Longer Reflects How Tipping Actually Works
This brings me to the part of the current system that makes even less sense.
In 2025, the Colorado legislature passed HB25-1208. The law allows local governments with minimum wages above the state minimum to increase their tip credits beginning in 2026.
There is an important limit. A local government cannot increase its credit so much that the cash wage falls below Colorado’s statewide tipped minimum wage. That still gives cities like Denver considerably more room than they currently use.
Colorado’s 2026 minimum wage is $15.16. The statewide tipped minimum is therefore $12.14 after applying the $3.02 constitutional tip offset.
Denver’s minimum wage is $19.29.
Simple math means Denver could permit a tip credit of as much as $7.15 while still requiring restaurants to pay tipped employees the same $12.14 cash wage required elsewhere in Colorado. Instead, Denver continues using $3.02.
Why?
Economically, the number has become almost divorced from reality. Suppose a Denver server receives $16.27 per hour from the restaurant and averages another $30 per hour in tips. That employee earns $46.27 per hour in total compensation. Again, good for the server.
But only $3.02 of the $30 that customers provide counts toward the restaurant’s minimum-wage obligation. The other $26.98 does nothing to further reduce that obligation.
We Could Even Try Something New
That makes me question why we even have a separate tipped minimum wage in the first place. If the purpose of a minimum-wage law is to guarantee that an employee receives a minimum amount of compensation for each hour worked, why not focus on the employee’s actual compensation?
Consider a different system. Colorado could establish a substantially higher minimum compensation floor for tipped employees, say $25 per hour, and require the restaurant to make up any shortfall between that amount and what the employee actually receives in qualifying tips.
Take the server in the example above. She earns $30 per hour in tips. Because her tips alone exceed the $25 minimum, the restaurant would have no additional minimum-wage obligation for those hours. The employee still earns $30 per hour.
Now assume she works a slow shift and receives only $15 per hour in tips. The restaurant would have to contribute another $10 per hour to bring her to the guaranteed $25 minimum. Still lower than the current $16.27 a Denver restaurant is obligated to pay no matter how much the front-of-house employee receives in tips.
That system would actually recognize both sides of the bargain. The employee receives a guaranteed minimum that is substantially higher than Colorado’s current $15.16 minimum wage. The restaurant remains responsible when customers do not provide enough in tips. But when customers do provide enough compensation, the law recognizes those dollars for what they are: compensation paid to the employee for providing service.
I am not necessarily advocating for a $25 minimum. I use that number to illustrate the point. If we are going to maintain a tipping system, why are we so focused on how much of the employee’s compensation must come directly from the restaurant rather than how much compensation the employee actually receives?
Colorado law already recognizes part of this concept. When an employer takes a tip credit and the employee’s wages and tips do not reach the applicable minimum wage, the employer must make up the difference. The problem is that Colorado then places an artificial ceiling on how much customer-paid compensation can count toward satisfying the employer’s obligation. That is the part I have trouble reconciling.
If a server makes $46 per hour between wages and tips, I am not sure what public policy objective we accomplish by insisting that an increasingly large portion of that compensation must come from the restaurant itself.
The employee is already being compensated. The customer is already paying for it. And ultimately, the restaurant will recover its additional labor costs from that same customer through higher menu prices, service charges, reduced staffing, or some combination of the three.
At some point, we should stop asking who physically writes each portion of the employee’s paycheck and start asking whether the employee is actually being fairly compensated for the work.
I spent years working in restaurants as a busboy, server, and bartender. Even as a busboy, I regularly cleared well over $20 per hour after tips. As a server and bartender, a good shift could put me closer to $50 per hour.
At the time, I was making $2.13 per hour as a tipped employee. My paycheck routinely got eaten up by withholding. I didn’t care. I was walking out with cash every night and making far more than I would have made in other hourly jobs available to me at the time.
That is not evidence that every server today earns $50 per hour. Of course they don’t. But it illustrates something policymakers seem determined to ignore:
If customers are expected to pay a meaningful part of an employee’s income, then those payments should meaningfully count when we calculate the restaurant’s wage obligation. Otherwise, what exactly is the purpose of the tip?
Edgewater Actually Tried Something
Edgewater deserves some credit because it is the only local Colorado government that actually tried to address this problem. At least for one year.
After Colorado passed HB25-1208, Edgewater increased its tip credit from $3.02 to $4.67 for 2026. That allowed the city to keep its tipped minimum wage at $13.50 rather than imposing another $1.67-per-hour increase. Edgewater was the only local government in Colorado to take advantage of the new authority. And according to recent reporting by The Colorado Sun, it helped.
The owner of Edgewater Inn estimated that the change will save her restaurant approximately $30,000 this year. She did not describe that $30,000 as some enormous new profit. Her restaurant’s annual profit does not even reach $30,000. The change simply helped the restaurant survive. That may be the most important fact in this entire debate.
We often talk about labor-cost relief as though every dollar a restaurant does not spend on payroll goes into the owner’s pocket. For many restaurants, it does not. It prevents another price increase. It preserves another employee. It keeps another shift on the schedule. It postpones a service charge. It pays the insurance bill. Sometimes it simply keeps the restaurant open.
And that is why Edgewater should not abandon what it started. Its current $4.67 credit was adopted for only one year. Under the existing ordinance, it reverts to $3.02 on January 1, 2027 unless the City Council acts again. I don’t believe preserving the $4.67 credit goes far enough.
For 2026, Edgewater’s regular minimum wage is $18.17. Colorado’s statewide tipped minimum is $12.14. That means Edgewater could have used a $6.03 tip credit without pushing its tipped cash wage below the statewide floor. In other words, Edgewater could have increased the credit by another $1.36.
When Edgewater sets its 2027 tipped wage, it should use the maximum credit Colorado law permits at that time. HB25-1208 gave local governments this authority for a reason. Edgewater now has real-world evidence suggesting that using it provides meaningful relief to restaurants. Why reverse course now?
What Exactly Are We Trying to Accomplish?
I understand the argument on the other side. A city council may sincerely believe that higher employer-paid wages improve workers’ lives. An advocacy organization may believe restaurants should bear more responsibility for employee compensation and customers should bear less. Fine. Then follow that argument to its logical conclusion.
If we want restaurants to pay servers a living wage directly, then we as a society need to move toward eliminating the expectation that customers tip another 20%+. Instead, we our culture needs to shit so that customers expect higher menu prices in exchange for telling guests that tipping is not expected.
Denver restaurants are already experimenting with versions of that model. Some have adopted service charges designed to spread compensation across the entire restaurant rather than relying exclusively on traditional front-of-house tipping.
And those experiments reveal something else that matters here: not every tipped employee necessarily wants to replace tips with a higher guaranteed wage. I sure didn’t.
Denverite reported in 2025 that some Colorado restaurants implementing service charges experienced substantial front-of-house turnover because employees saw their tip income decline. In some cases, restaurants lost as much as 90% of their front-of-house staff after implementing a service charge.
That does not prove that every server prefers tips. It does, however, prove that the economics are more complicated than simply saying a higher set minimum tipped hourly wage is always better for the employee.
For some skilled servers and bartenders, traditional tipping offers substantial earning potential. If we eliminate or diminish that system, some of those employees may simply move to restaurants where tipping remains the norm. That is another reason local governments need to decide what system they actually want.
A higher employer-paid wage with little or no expected tipping can make sense. A lower employer-paid wage combined with meaningful customer gratuities can also make sense. What is becoming increasingly difficult to justify is requiring restaurants to move closer and closer to the first model while retaining the tipping expectations of the second.
We cannot have it both ways forever. At some point, the customer looks at a $20 burger, a $17 cocktail, taxes, perhaps a service fee, and then a screen suggesting a 25% gratuity and decides to stay home. When that customer stays home, the restaurant loses revenue. When enough customers stay home, the restaurant cuts hours. Then it cuts employees.
Eventually, it closes.
And when the restaurant closes, the minimum wage becomes irrelevant because there is no job left to pay it.
I am not suggesting that every wage increase causes a restaurant to close. Restaurant failures have many causes, and restaurants have always been difficult businesses. But policymakers cannot simultaneously acknowledge that full-service restaurants operate on margins around 2% to 3% and pretend that substantial mandatory cost increases have no consequences. There is a point where there simply is no margin left.
Is closing more restaurants really the policy outcome these city councils want?
Denver, and every other local government with a minimum wage above the state minimum, should take a hard look at HB25-1208. The General Assembly specifically authorized these local governments to increase their tip credits. Denver can do so while preserving the statewide tipped wage floor. For 2026, that means Denver could move from its current $3.02 tip credit to as much as $7.15.
Interestingly, that is essentially the policy direction recommended in the 2026 Denver restaurant report discussed by Axios. The report recommended bringing Denver’s tipped wage down to the statewide $12.14 level because labor costs have become a major obstacle for restaurants trying to remain viable. That would not abolish Denver’s minimum wage. It would not eliminate wage protections for tipped employees. It would not allow a restaurant to pay a tipped employee less than Colorado permits elsewhere in the state.
It would simply recognize that Denver customers already compensate these employees directly through tips. And if those tips do not materialize, the employer remains responsible for satisfying the applicable wage requirements. That seems like a much more rational system to me.
Edgewater took the first step. It should now finish the job rather than retreat from it.
Denver should follow.
We Have to Pick a Lane
Ultimately, this debate has become unnecessarily complicated. Either we want a tipping culture or we do not. If we decide that tipping remains part of restaurant compensation, then tips need to count meaningfully as compensation. Cities should use the tip-credit authority Colorado gave them, subject to the statewide wage floor. If we decide that employers should directly provide essentially all of a restaurant worker’s compensation, that is a legitimate policy choice too. But then we should stop expecting customers to add another 20% to 25% to every restaurant bill.
And we should recognize that some front-of-house employees may not consider that change an improvement. Some servers and bartenders earn considerably more under a traditional tipping model than they would under a higher flat hourly wage. That is their choice too.
What we cannot sustainably do is require restaurants to pay increasingly high tipped wages, force them to raise menu prices to cover those wages, and then expect customers to fund another substantial layer of compensation through gratuities.
Higher employer-paid tipped wages + higher menu prices + 20% to 25% expected tips is not a compromise. It is two compensation systems stacked on top of each other.
Restaurants, unlike governments, cannot operate indefinitely while losing money. Every dollar in the restaurant ultimately comes from the customer. It comes through the menu price, a service charge, or the tip line. There is no fourth source of money hiding behind the bar. The question is not whether restaurant workers deserve to make good money. They do.
The harder question is how we expect restaurants and their customers to pay them. Colorado has now given local governments an opportunity to answer that question more rationally. Because if local officials continue increasing restaurant costs until the margin disappears entirely, they may eventually discover the obvious:
A closed restaurant pays no wages at all.
