As restaurant owners wait for the Seattle City Council to deal with high delivery app fees, there’s another challenge facing their businesses, reports the Seattle Times: The minimum wage at restaurants could go up by as much as $3 next year. That would be a huge boost for many low-wage workers, and also potentially an existential threat for restaurants that rely on those workers.

As of 2024, the minimum wage in Seattle is $19.97 an hour, unless you employ fewer than 500 employees, in which case you are allowed to pay them $17.25, provided the difference is made up by tips or medical benefits. According to the Times, this exception was carved out during negotiations over the minimum wage law passed nearly a decade ago, as then-Mayor Ed Murray attempted to assemble as broad a coalition as possible for the groundbreaking wage hike.

When that law went into effect in 2015, everyone was referring to it as a “$15 minimum wage,” then seen as a high number. (Small businesses then had to pay workers an $11 minimum wage.) Since then, Seattle’s minimum wage has risen beyond that number because the law ties it to inflation; Seattle’s Office of Labor Standards will announce the 2025 minimum wage in the fall. But the provision that allows small businesses to pay certain employees less will expire next year unless lawmakers take action, which means that in addition to the usual inflation-adjusted bump, smaller businesses will have to pay their employees as much as large ones do, and they won’t be able to factor tips into the equation.

This impacts the restaurant industry in particular because very few Seattle restaurant groups have more than 500 employees. The exception is Ethan Stowell Restaurants (ESR), which, the Times notes, hit that mark last year and responded by putting all workers, including servers, on an hourly rate and adding a service charge to checks.

“You either have to change the model next year or prices are going to go astronomically high or places are going to have to close down,” CEO Ethan Stowell told the Times.

The ESR example provides a window into how the industry could change if this small business exception expires. “The reaction among staff was mixed” at ESR, the Times writes. “For some, it was a positive, because it meant they earned more on sick days or when taking leave. Others quit.” This reflects a divide among restaurant workers — some want their pay to be more stable, while some servers and bartenders make good money thanks to tips and might see their earnings drop if they had to become hourly workers. Meanwhile, some customers really, really hate the service fees that tend to come with the hourly wage restaurant model.

According to the Times, restaurant industry lobbyists have been asking the City Council to make the small business exception in the minimum wage law permanent. But this is a tough ask. The Council also has other issues to deal with, and some members have conflicts of interest — Council President Sara Nelson is a co-founder of Fremont Brewing and still owns a portion of the company.

If politicians tried to tweak the minimum wage law, they would also face opposition from labor groups. David Rolf, a former union president who helped negotiate the law in the first place, was blunt about this when he spoke to the Times: “Undermining Seattle’s minimum wage law is political suicide for anyone who tries.”