Tips and Restaurant workers

As we wrote about last week, the increase in the federal minimum wage is inevitable. The wage rate increases have been retarded for years and the targeted $15 won’t actually return the minimum wage to its levels in the 1970s, adjusted for inflation. Already 22 states increased minimum wages in the last two years: 7 million workers will earn annually $8.2 billion dollars more. New guidelines mean even au pairs are getting minimum wage.

In the meantime the federal minimum wage for tipped restaurant workers has not changed since 1991 and remains at $2.13 per hour. That’s 30 years.

More than 60% of tipped workers are in the food industry. While other employees in restaurants receive the prevailing minimum wage, tipped servers do not. Wages are theoretically increased by employers who have to make tipped workers whole – equal to the prevailing minimum wage. Taxes make it complicated but essentially anything above that is theirs to keep. Seven states have adjusted this wage up but most use the federal rate. But the system really doesn’t work well. Subminimum wage workers have nearly double the poverty rate for non-tipped workers, according to analysis done by the Economic Policy Institute, and they are much less likely to receive benefits. It engenders and reinforces gender and race inequities.

The distortions and asymmetries to the tipping system are myriad. If earning should be based on labor, how hard you work, then the compensation is as arbitrary as hell, varying on the diner but also menu price, hours, geography, daily traffic, staffing, restaurant policy (like how many tables you can have) and so on. In theory, tipping should be for quality service but, in addition to the stuff above, the word quality is arbitrary too. If you don’t think people have differing views of how they should be treated, read Yelp.

Then again, my son and I enjoyed a meal at 11 Madison Park pre-COVID where he ran into a bunch of friends from culinary school. They were all working front of house because the earnings were so much better. than being a chef

Late in the Trump Administration, the Labor Department announced several rules regarding tips. These rules, backed by the National Restaurant Association, would allow any tips earned above regular minimum wage to be pooled and split among workers . The 80/20 rule, which limited how much restaurant management could use tipped workers for non-tipped activities, was eliminated for much vaguer guidelines. The situation is rife for exploitation and these changes may cost workers $700 million a year, to the benefit of restaurant owners.

The Biden Administration has said it will review this rule and may reverse it. It also supports the repeal of the tipped minimum wage.

And of course COVID has messed things around. The basic value proposition and business model for restaurants were changed. Many restaurants chose or were forced to close their dine-in service and many locales still have limited occupancy rules, meaning fewer tables to be waited on. For those still in restaurants, work has become a risky proposition. As a South Korean study shows, COVID travels quickly and extensively in restaurants. Six foot separation may work out of doors but not in a dining room. On top of all that, diners have been withholding tips due to resentments over COVID, blaming them for decisions entirely out of their control.

So isn’t the time ripe for a re-examination of not only the tipped wage, but tipping as a concept?

The movement to move away from tipping seems to be gaining steam. Canada is moving towards no-tipping. Most of the world is already there. But Americans in general don’t like automatic gratuities for their restaurant meals. And restaurateurs, even enlightened ones, aren’t sure how to move forward.  Union Square Hospitality Group (Shake Shack, High end restaurants) tried moving away from tipping but after four years reinstated it.)

I am conflicted. Restaurant workers deserve living wages and the tipping system as currently constructed can make that arbitrary. Tipping is leveraged against workers wages and benefits, which isn’t fair and creates some really lousy conditions. Servers at a high end restaurant can earn a lot of money. But that doesn’t represent the vast majority of tipped workers

On the other hand, I always believed tipping factored into great service, I literally enjoy tipping for it. Yes this is reflective of privilege but I have worked as a server and a bartender, so I hope I retain some level of perspective.

One of the sources of hesitancy I had regarding eliminating tipping is from my experience service outside the US. Not at higher end restaurants but middle range on down it’s usually not as good as the US. But I’ve never had better service than at the Fat Duck in Bray, England and I won’t soon forget the positively insulting service we received at Hakkasan in NYC where I felt forced to leave the lousiest tip – by percentage at least – I’ d left in years.

I am aware that this essay is full of ‘on the other hand’ ambivalence. (What did FDR say about wishing for one-handed economists?) From a market perspective, restaurants should compete by the inclusion of service levels as a part of their offering. Non-tipped staff be sufficient to ensure a quality of experience for the diner. The challenge becomes how do they create a culture of service with motivated and fairly compensated employees? I suspect the challenge to create this will come from increasing consumer appetite for fairness.