Here's how included tips pay out, and pay off, for restaurant employees.
By Su-Jit Lin via Huff Post
“Rent Is 2 Damn High” has been a unifying rallying call several times already in the past couple of decades. But now, people are adding the price of food to that age-old complaint.
Sure, the annual rate of inflation has (thankfully) slowed to 6.5% from the 40-year high of 9.1% in the beginning of 2022. But concerns about our rapidly rising cost of living have stayed in peak mode as we essentially eat our paychecks. The overall cost of groceries is up 13.5% on average, and dining out has gotten pricier, too. As of August, across the country, menu prices have increased roughly 8% over the previous year ― a marginal rise considering that of raw material, labor and utilities. Naturally, eating away from home is predicted to continue to increase in 2023, by about 8%.
But when times are hard, self-care can be taking our pleasures where we can. For many, there’s a lot of solace in a nice night out. Unfortunately, that doesn’t always extend to tips for service staff, especially as diners’ wallets are beginning to feel emptier than their bellies.
The generous tips from the onset of COVID are waning
During the height of the COVID-19 pandemic, tipping on takeout and to-go orders became commonplace. While some protested the change in the longtime status quo, others tipped generously in appreciation for receiving any service at all.
Now, gratuity-based gratitude toward those who choose to continue working in food and hospitality has waned as we — and our service expectations — have crept back toward “normal.” Ubiquitous tip jars for counter service have become a point of contention even in the name of fun, and resentment for the uncomfortably swiveled screen asking for gratuity has bubbled up.
To budget for dining out, some folks are reducing their standard tip percentages. However, servers are still making the same sub-minimum wage — a measly $2.13 per hour federally, which allows employers to claim a tip credit of up to $5.12 to get front-of-house (industry lingo for waitstaff) pay up to at least $7.25 an hour.
This amount varies by state, but by law, in many states, if you earn at least a paltry $20 a month in tips, you’re working for nothing more than, as Blanche DuBois so eloquently put it, “the kindness of strangers.” However, the ever-resilient food service industry has begun to create its own solutions to protect people within their own pandemic-shrunken community: a growing popularity in the institution of service fees.
What are service fees?
Some restaurants tout that your bill is service inclusive, meaning gratuities are included and tips are unnecessary. (This is not to be confused with another contentious topic, 3% service fees you may be charged for using a credit card.) The fine print at the bottom of menus and receipts was previously reserved for footnotes explaining that mandatory gratuities will be applied to large parties. But now, for example, chef-owner Mei Lin’s The Consulate in Atlanta notes on its menu that a 18% surcharge will be added to the tab of all diners, no matter the size of the group, to better protect her staff.
Why not just build it into the bill? As Devon Sanner, chef/owner of Zio Peppe, has said: “The no-tip model is a pretty tough row to hoe.” In reference to Danny Meyer’s unsuccessful attempt at instituting a no-tipping policy across his restaurants, Sanner reflects, “It seems the American dining public is not ready to embrace the up-front, service-inclusive model of pricing.”
Some outspoken chef-owners, such as Ron Hsu of Lazy Betty and Joey Ward of Southern Belle/Georgia Boy — both highly acclaimed, fine dining tasting menu restaurants also in Atlanta — are still trying, though, sacrificing personal profit to lead the way into more equitable pay by example. Both have chosen to eschew the up-front savings of paying sub-minimum wages (“tip credit” savings), where customers are expected to make up the difference to get them up to state minimums. Instead, they’ve chosen to pay real wages by baking tips right into their menu prices, adjusting them “based on the average tips [my] team has garnered over the past two years,” leaving “the overall price of dining unaltered,” Ward said.
For the diner, restaurant service fees all come back to the same thing: What you see on the bottom of your check is what you pay. Of course, you can opt to give more — Hsu notes that roughly 30%-40% of Lazy Betty’s affluent guests will still leave an additional gratuity and “the tip usually ends up being around 25%-35% with the additional tip and service fee combined.” But the great news is that even if you choose not to leave more, the restaurant has already mandated that there is an ethical minimum as to what their employees will earn.
What about counter service tipping?
Let’s first talk about the two different kinds of counter service. There’s the minimally interactive traditional type, where the order-taker punches it in and grabs your muffin or pizza slice from behind the glass. Then there’s the type of counter service where they’ll take your order, you sit down with a table card, and then you are served.
Requests for tipping on either annoy strapped customers, especially since it requires tipping on faith of good service. But for the latter, tips via jars or the turned-around tablet during counter service may actually be another clever way restaurant owners are eating some profits to ensure that their entire team, from front to back, is taken care of in a more equitable fashion.
Sanner said, “We do counter service because heretofore Arizona law prevented full-service establishments from tip-pooling with back of house.” Fellow Tucson restaurateurs Erika and Jake Muñoz of Seis Kitchen, a collection of restaurants honoring the six culinary regions of Mexico, do the same to provide equitable pay across their team as well as benefits for all. Both offer higher hourly wages than required by law, making pooled tips much more palatable for servers while providing more for their kitchen teams.
This state ruling is changing in the near future, which is part of the reason Sanner is making a shift to full service. “We will not be lowering base wages for our employees,” he said adamantly. While he offers a litany of reasons, he punctuates that list powerfully and simply: “If my economic success is predicated upon my staff making subsistence wages, I’d rather not.”
When tips are nontraditional, who gets paid and how?
The truth is, it depends on the business and its owners. But like most of the food service industry, it’s based on good faith. Just as you trust the folks in the kitchen are preparing your food with care, you’re now expected to also trust that the service fee is being allocated to the employees appropriately. And as with any tip pool, even credit card tips, there’s a fair bit of that faith involved, as Hsu said.
While full transparency isn’t currently the norm, there are restaurants leading by example. For example, SmackDab in Chicago, a counter-service restaurant known for creative biscuit egg sandwiches, prints the breakdown of your contribution toward benefits like health insurance and paid time off for their employees — things gig economy jobs like food service don’t often provide — right on your receipt.
More commonly, it’s a decision that’s motivated by ethics and the racist and sexist roots of the tipping system, which Hsu and Sanner have both gone on record to rail against. But because all of that is paired with higher base wages for servers and kitchen staff, “It’s not better for the business in the short term,” Hsu points out.
In fact, all of the chef-owners we interviewed cited equity between those two teams as a primary motivator. By using the loophole of inclusive service and tip jars, they’re able to help bring up the pay of line cooks, dishwashers and other behind-the-scenes critical team members with pooled tips.
“At most full-service places, back-of-house makes much more than minimum wage and the servers are making sub-minimum,” Hsu said. “But because [servers] get 100% of the tips, they end up making more than back-of-house. It’s a sensitive thing where servers make much more of the money” — especially when those behind the scenes are often minorities.
Ward noted, “The back-of-house employees make the same wage regardless of how busy the restaurant is. … This disparity often leads to resentment among employees.”
This morale issue is a driving force behind his “all for one” wage model, which incorporates a points system in the communal tip pool. “This is a win-win for all employees because the busier the restaurant is and the harder everyone works, the more they are compensated,” he said.
A firm believer in the profit-sharing mentality, Hsu said, “It ensures staff can make a livable wage and helps promote a one-house approach as opposed to a front-versus-back mentality and culture, and gives them all a financial stake. Best of all, it doesn’t actually take money away from the servers — I’ve seen that people do make the same amount of money with the built-in service since they’re not at the mercy of the moods of others for their pay,” noting that he’s unfortunately seen servers penalized for the behavior of other guests or personal circumstances.
Regardless, the question of allocation is a tough one to answer since, right now, there are no rules. As Hsu said, “You can’t really regulate it unless you have access to the financials or intimate knowledge.” But in the same breath, he brings up this excellent point: “Why should (and is) this industry so highly scrutinized? No one is auditing how [service fees] are being distributed in other industries. It all ties in with the perverseness of America’s tipping culture.”
Included service costs owners more. So why do it?
Ultimately, the owners who choose this system of pay for their staff members do it as a way to fix a broken system, to pay it forward for those cooks who hope to walk in the owners’ shoes, even if they are willing to make less because they want to learn, as Hsu put it.
The owners also do the hard legwork of calculating and establishing included or built-in tipping as a way to retain great, in-demand staff and provide exemplary service with happy employees. The reality is that understaffing is still a major issue and any restaurant owner will agree that high turnover and the waste of management’s time is often much costlier in the long run than investing in them.
“With restaurants closed during the pandemic, many employees left the restaurant business to make better livings with fewer hours in other industries,” Ward said. That’s not even to mention more consistent pay, health care and working conditions better than the notoriously tough restaurant and hospitality fields. And strapped private restaurant owners, in an industry that’s well known for its high overhead, simply need all the help they can get from the village to … well, keep their help and keep them happy.
Tip-inclusive service is one unconventional method forward-thinking, equity-minded restaurant owners are testing out. In experimenting with different forms of service and compensation, they’re tenaciously swimming against the current to improve how Americans are paid. And despite Meyer’s unsuccessful attempt, smaller but no-less-notable chef-owners are staying their upstream course, no matter how hard it is.
It’s a lot of work to change a broken system. So why do it?
“When I retire, I’d like to think I pushed the industry into a better future, even if [the change] is very small, in the whole restaurant scene. The change has to start from somewhere,” Hsu said.
And for us as the dining public, that somewhere might just be embracing the freedom of not having to do sloppy, wine-sodden math at the end of a nice night. Many of us can drink to that.