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Tip Pooling

Minimum Wage: How Tip Pooling In Restaurants Could Be Beneficial


Minimum Wage: How Tip Pooling In Restaurants Could Be Beneficial

The minimum wage debate is a hot topic these days in the food world.  Nobody on either side of the debate seems ready to settle on any middle ground.  Some cities/states have raised the minimum wage to $15/hr already, and likely many more will follow.  A byproduct of the minimum wage push, has been a few restaurants trying to bridge the gap in pay between the front of house (FOH) employees and back of house (BOH).  The leading plan/trend to do so, is eliminating tipping. I am a little nervous writing about this publicly as I already know that some people won't agree with my opinion.  Ahhh what the heck...let's do this topic.

 My opinion on the minimum wage and the FOH/BOH pay gap is significantly varied.  So I will take them one at a time starting with minimum wage.  Keep in mind, this is an evolving world and I will continue to keep an open mind about these topics.  I don't know everything, despite my oft boisterous claims to the contrary, but I do have an educated perspective as an owner in the field.  
I don't believe that minimum wage jobs were meant to earn a living off of unless overtime opportunities are regular in a particular job. For example, my brothers worked landscaping way back when they were young as a summer job to earn money for use during the school year.  They worked hard, and often were over 40 hours by Wednesday.  It was hard work, and I usually laughed at their expense when they returned home for the day.  Their boss pushed them hard, they were young and willing, and three months of work over the summer was exactly what they needed to live the rest of the year without working (read: they really wanted to focus on school so they could someday get into the restaurant business!!).  Minimum wage positions are intended to be supplemental income for those who need a job that requires little training.  Further, my brother's boss built his business based on that temporary labor influx at a low wage.  It was a win/win situation.  If my cretinous brothers could make it work, so can many others as long as they understand that it is not work intended to fully support a family.  You do this work as added income to a household or to make ends meet while you acquire a skill that pays more.  
Unfortunately, the economy has changed since then, and more people than ever are dependent on minimum wage jobs to support families.  In that lies the basic problem: the business model is what it is.  Businesses will maintain a certain labor percentage regardless of the rules imposed upon them.  In full service restaurants that percentage is around 27%.  Quick service restaurants are turning to new technology that eliminates the need for certain employees through ordering kiosks.  Online ordering is gaining steam because we don't want to pay multiple phone personnel wondering which days we will get enough calls to make them worth while.  Third party delivery companies like Uber are gaining popularity.  Grocery stores implemented self-checkout years ago.  The reason for this is as obvious as you think it is.  Businesses are adjusting to the new rules in advance because they want to survive.  

So, how can we fairly burden businesses to keep up with demand for products and services while maintaining their balance sheets at these new wages?  My short, obtuse answer is, we can’t.  Businesses will simply adjust to make their payroll percentage by eliminating staff or by raising prices.  In my opinion, that is not good for the workforce.  I am no economist.  Actually, my ECON class was at 8am and I rarely attended because I like beer.  However, I think many small businesses like ours share this same mentality.  So even if the policy makers are correct, and we can tolerate all of the cost increases associated with a labor hike (there are many), I believe raising the wage too fast will cause labor stagnation while businesses adjust (not sure I am correct, time will tell, but that is one of the smartest sounding things I have ever said).  

Two things that get overlooked or are basically ignored in this debate:  1. Although we obviously don’t want our payroll too high, we don't want our payroll percentage too low either.  A low payroll percentage means that the volume is there, but the personnel to handle it is not.  In that case, we will give poor service.  The narrative of those who want to raise wages is that business owners are ruthless and treat employees unfairly.  We did not get into hospitality because we enjoy treating people badly.  We will not thrive if our staff is disgruntled.  We want our staff to be happy at work because they are making good money, and feeling good about the job they are doing. We don't want them overworked and fielding complaints so we can save a few dollars on labor.  That is how you slowly go out of business.  

At our current pricing, we would have to cut about 35% of our service staff per shift if the minimum wage hits $15/hr.  Think about the service you would receive vs what your service expectations are.  FOH employees all make way above minimum wage anyway in our (and most) restaurants.  Often you will read that service industry people make less than minimum wage.  It is a nice soundbite, but entirely untrue!  Servers for example, make $25/hr in a busy restaurant (I am ball-parking this stat and including tips). That's gooooood!  They are undeserving servers who we all know are second rate citizens at best...KIDDING!!!  I love them all almost equally  Bottom line, they make good money and work part time.  This leads to my second point, if there are under-performing restaurants out there where the staff does not make this wage, employees can leave that job if they can't make ends meet.  Burdening the business with higher wages is not going to help an under-performing restaurant.  It will sink them along with their employees!  I really don't see the logic in this move except for in the back of the house...
The pay gap between BOH and FOH is too large.  BOH employees generally work full time and make less than the FOH who work part time.  That bothers me.  Their job requires cooking skills, more cleaning, and manual labor, speed, and accuracy.  They are also responsible for sanitation and safe food handling.  They got skillz yo!  There are not a lot of restaurants that offer $15/hr to their BOH staff.  That would blow up the balance sheets and shutter many restaurants.  Essentially everyone in the BOH will be making minimum wage in the near future when the minimum wage increase is mandated.  The only ways I can think of to fix this pay gap are to raise prices or tip pooling.  Raising prices is something that we truly don't like to do.  You might say "yeah right", but seriously, why would I want to raise prices?  That just upsets customers who can't fathom why chicken parm costs $25.  We only raise prices to keep the business model in balance.  That's the god's honest truth.  

Tip pooling is the answer to the pay gap issue.  Some think it is eliminating tipping.  I don't.   Eliminating tipping means straight pay across the board for restaurant staff because gratuity is built into the price of food and drink.  The problems: servers can still go work elsewhere and make tips so they will.  Their money comes on a check weekly or bi-weekly and is taxed higher.  That just doesn't work well for college kids and is unreasonable.  Those restaurants will have staff retention problems.  Also, customers don't like seeing the higher prices even though their cost is actually the same.  

Tip pooling seems more appropriate to me, however, there are some truly insane laws that surround tip pooling like if you don't serve food, you can't get a tip (I paraphrase so don't quote me, but I speak the truth).  The laws vary state by state adding to the confusion.  I try to keep up on this during my five minutes of free time. One smart operator has found what I think may be a loophole...they have all of the BOH employees deliver one dish to a table per shift. I do enjoy when someone outsmarts the laws.  It is a perfect microcosm of what I described earlier...businesses will simply adjust regardless of the rules.  So stop making more rules!  Seriously, can't we just change the laws instead of having the dish washer deliver your food?  Or pulling a cook off the line when we are slammed?  There is a little part of me that wants to just eliminate all of these laws because they get in the way of good business.  I know why we cannot eliminate the laws, but please understand how frustrating this is for any honest business person.  We will jump through all the hoops because a couple of...don't curse Russell...jamokes treated their employees poorly.  Grrrrr

Final thought, if we eliminate the tip pooling legal nonsense, people will get paid more fairly across the board in restaurants.  It will create more connection between the cooks and the servers.  Cooks will care more if a server royally sucks.  Every dish they make will directly impact their income.  That is better for you the consumer as it pertains to service.  Never again will a guest say to me while complaining "well it wasn't the servers fault so I still tipped" (for the record that is not always true.  Sometimes a poorly made dish is entirely the servers fault so stop saying that to me.  I will figure out the blame.  That is what I do.  Then I usuuuually fix it).  

Like I said, not every restaurant has our mentality in terms of fairness in pay.  It sure would be nice if we didn't have to jump through all these hoops, which are presented seemingly daily of late, and could just focus on serving guests.  We would reward our staff for their efforts.