Where Do Restaurants Go From Here?
“We run short staffed at all locations almost all shifts.” David Winer, Principle and Founder of Eat Well D.C. tells me. “Tim, there are few or no people coming in the door from ads. BOH* is not that significant of a problem as we have a lot of long time staff. We pay them a start of $16 and work our way up to the low $20s. FOH* is the issue and no one is coming in. Our average server makes $30+ /hr., bar a bit more and busser a bit less, but all significantly above $15” David doesn’t think that it’s a wage issue. Few would argue that $30 per hour in this environment is not good money. David’s places are in downtown D.C. I don’t doubt that servers can earn that much in D.C.
So what’s the problem? Why is no one coming in to apply for work as a server or bartender?
Attitudes toward these jobs have changed. Problems like long hours, constant double shifts, working on holidays, and low per hour pay have lessened the allure that these positions once had. Tipped employees, like servers and bartenders, make approximately $2.50 per hour in actual pay. You read that right, $2.50. Different states vary, but not by much. It’s called a Tip Credit. It allows hospitality companies to pay a smaller minimum wage to tipped employees. The employees have to “claim” their tips at the end of each night. By the end of the pay period, if their tips do not add up to enough money to equate to minimum wage, $7.25 per hour, the employer must make up the difference in pay. But that rarely happens.
This system was accepted by tipped employees for decades. Most tips before the turn of the century were in cash. The government’s original tip claim amount was based on 8% of the employees’ individual sales. This was an acceptable amount at a time when an average good shift’s tips were 15% of sales**. A large part of the financial draw of the job came from not reporting total earnings to the government. Servers and bartenders always made way more money than they claimed in taxes.
But those days are gone. The government now uses a minimum standard of 15% of the server or bartenders sales. As most tips are on now credit or debit cards, employees get their tip money from their employer at the end of the night, or on their paycheck. But employees must claim all of their tips because debit and credit cards create a paper trail. Very few guests pay or tip with cash anymore.
Some states have passed laws requiring tipped employees to be paid minimum wage, and more are considering it. Because of the Tip Credit Pay, most servers and bartenders get $0 paychecks. The amount of pay on their check is not enough to cover their taxes owed. Plus they are taxed on the tips they claim. So at the end of the year, they can end up owing large amounts of taxes. Washington D.C. raised the minimum wage to $15. However, in a compromise, the city allowed hospitality companies to keep the tip credit, but the pay was increased to $5.00 per hour to tipped employees. Even with this increase, most of the servers and bartenders in D.C. still get $0 paychecks.
The lure of these job, such as it may have been, is gone. Tipped pay just doesn’t add up to what it did in the past. Add to the tip issue what is often a high stress environment, long hours, double shifts, and poor quality of life, and you get the current situation.
Today, job applicants are no longer coming through the door. The Covid-19 lockdown was the death knell to business as usual. And it showed many in the hospitality industry that life at work didn’t need to be so hard. It gave them time to think. And they have decided that unreliable pay, long hours, and working on holidays and weekends is no way to live. Many industry workers found new careers. And others are taking advantage of the current unemployment benefits to look for new jobs. After the unemployment benefits lift later this summer, some former employees will return, and some new applicants will come through the door. Staffs will increase, but not by enough. The staff shortage will continue.
As I stated earlier, I have no doubt that a server or bartender can make $30 per hour in a downtown D.C. restaurant. But that $30 isn’t what it used to be. The work is hard and the quality of life can be terrible. The bottom line on all of this is that wages are going to increase for tipped employees. It’s either going to happen naturally through the market, or by government intervention. Either way, it is coming. It’s time to accept this as reality. Denying it or fighting it is not going to help restaurant operators. Some restaurants are already starting to increase tipped employee pay to retain their current staffs. Donna Shore, owner of Born Hospitality LLC tells me this, “I know we currently pay more per hour even for tipped employees to get them to join us, and increasing our existing staff’s hourly wages to ensure we retain our talent.”
Since restaurant profit margins are already thin, prices on menu items will increase to support this wage increase. That understandably scares many operators. But they need to start looking into these moves now instead of later. Gather and discuss the situation with fellow operators in your area. The move is inevitable. And making such moves as a group would be preferred, since no one would gain a clear competitive advantage.
In summary, the view of these tipped positions has changed. Being a server or bartender has lost much of it’s appeal. The Tip Credit System is antiquated and dying. Minimum wage for tipped employees will happen. The best move is for operators to move together, get ahead of the game, and start making what changes they can now.
*BOH stands for Back of House which includes the kitchen, dish rooms, and most storage areas. FOH stands for Front of House which includes the bar, dining room, and host stand.
**The law has always stated that 100% of their tips must be claimed, but everyone knew what standard the government actually used.
What Is That Fly Doing In My Soup? 