Minimum wage laws are at a tipping point among restaurant owners, workers, and patrons. Those in favor of a higher minimum wage argue their necessity based on the cost of living. Opponents, on the other hand, fear the potential impact of higher labor costs on businesses. And restaurants, which typically employ mostly minimum-wage workers, are feeling the heat.
For dining establishments, it’s a bit more complicated than just giving staffers a raise. For example, where does tipping factor in? How will customers react to increased menu prices or service charges to cover the cost? And will diners who assume workers are being paid more cut back on tips?
Roughly half the minimum-wage workforce is employed at businesses with fewer than 100 employees, and 40% are very small businesses with fewer than 50 employees, according to the Census Bureau.
In 2018, 18 states committed to putting minimum wage increases into effect. Minimum wage is increasing across the country, but some front of house restaurant staff are concerned that misinformation, or a lack of understanding of how these increases work, has resulted in negative impact on the tips they depend on, according to a survey we conducted.
Survey says: The minimum wage is going up….
Upserve conducted a minimum wage survey to determine the minimum wage impact on restaurants. Slightly over 36% of our respondents said the minimum wage has risen in their state of employment in the last six months. And only two respondents working in a state with a minimum wage increase selected that they do not receive tips in their position.
*Only 2 of the respondents working in a state with a minimum wage increase selected that they do not receive tips in their position.
…But take home pay is not.
Of respondents who reported a minimum wage increase, however, 73% said that their take home pay—restaurant wages and tips—has not increased.
While salary for a waiter or waitress might be up, tipping is down, with 24% saying their tips have decreased as a result of an increase in minimum wage.
It appears, according to our survey, that restaurant staff believes guests’ perceptions of what an increase in minimum wage means is affecting how much tip they leave.
The thinking goes like this: 45% believe that guests assume the server’s salary has gone up, and staff makes more money as a result of the minimum wage increases, so they tip less.
The reality is that in most cases, tipped workers are not impacted by a blanket minimum wage increase.
The change in laws puts restaurant owners in a tough spot, however. Many restaurants might look at surcharges, or raising the hourly wage while dropping tips. But in our survey, tipped workers said they wouldn’t accept a substantial increase in hourly pay if it meant eliminating tips.
Over 68% of restaurant staff said they would not take an increase in hourly wage if tipping were removed. This isn’t surprising, as a past Upserve study indicated that 97% of servers preferred tipping as their payment method.
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Some strategies to try
What most people don’t understand when a state or city raises the minimum wage is that it’s not all at once. In California, for example, the minimum wage increase is being rolled out in phases. So when the first phase occurred, the family behind Zov’s Restaurant cast a wide net to make up the increase in overhead.
“Some of our staff has been with us for 15, 20 years,” said Armen Karmardian, CEO of Zov’s Restaurants, now with five Orange County locations. “We sought alternative ways to drive the topline to increase the bottom line without imposing a ‘no tipping’ policy that didn’t fit into our version of hospitality. We need to retain top level servers if we are to stay true to who we are and keep our guests at the forefront.”
Zov’s Restaurants looked for high volume items that every table might order, such as iced tea, and increased the price by mere cents. It also marketed take-out orders, corporate delivery catering, and special events. When the second phase arrived, they looked at their foot traffic and modified inefficient hours of operation, shortening their open-time by three hours. With multiple restaurants, they have also been able to use their volume to negotiate contracts with vendors to get a reduction in costs based on buying larger quantities.
This type of creativity and bargaining is happening at restaurants across the country as eateries confront the rising cost of labor as a result of minimum wage increases.
Some restaurants are trying to add a nominal support charge to help cover costs. “It’s definitely going to be a challenge setting up new expectations with our guests,” said Leonard Chan, owner of Iron Press, Roiling Boil and Blind Rabbit, all food venues in the Anaheim Packing House, a popular gourmet food hall and premier OC destination. “We feel like this is a better solution than a blanket price increase across the board which would be larger than the small percentage.”
A tale of two service industry professionals in Minnesota
Ginger Jentzen, a former server who became the executive director of 15 Now Minnesota, an organization advocating for raising Minnesota’s minimum wage to $15 per hour, believes the wage should increase regardless of whether the position receives tips or not. “Most tipped workers are women and low wage jobs are disproportionately filled by women and people of color,” Jentzen said. “Seven of the ten highest poverty wage jobs are in the restaurant industry.”
On the other side is Sarah Norton, a career server and founder of Service Industry Staff for Change, a loose coalition of service industry professionals weighing in on issues that affect local restaurant and foodservice businesses. She wants an increased minimum wage, too, but with an exception for tipped workers. “Employers depend on the tipped model, that’s the system that’s been set up,” she says. “You can’t just come in 40 years later and change that. We are 100 percent opposed to eliminating tipping – hands off our tips.”
The parties advocating a $15 minimum wage across the board say figuring tips into the equation is a “tip penalty.” The service industry professionals and restaurateurs supporting a minimum wage floor that figures in tip amounts refer to it as a “tip credit.” But Minnesota state law explicitly states that tips received by an employee can’t be counted against the employer’s minimum wage obligation.
In 2019, employees of large businesses in Minneapolis will be paid at least $9.86 an hour, up from $9.65 that was required for 2018. However, in St. Paul and in Minneapolis, a $15 per hour citywide minimum wage was approved, and will be phased in over the next few years. But those city councils also chose not to include any exception for tipped workers, despite lobbying from restaurant owners who advocated for a tip credit.
For restaurants, one thing is clear: margins might be tight, and minimum wage shifts will impact your bottom line one way or another.
Surviving the minimum wage laws, and the yearly increase, demands restaurateurs find creative solutions. They must stand behind their business philosophy and obey changes in laws they can’t always control, all while keeping their customers’ experience a priority.