The tipping point

May 5th, 2015  |  Published in Business, Uncategorized

Issues: Closing the restaurant wage gap

The tipped minimum wage does not apply to cashiers and baristas, but this jar shows how ingrained tipping has become in American culture.

The tipped minimum wage does not apply to cashiers and baristas, but the jar is a symbol of America’s tipping culture. Photo: Cassandra Basler.


Under the glow of garden fairy lights and streetlamps, nine patrons huddle in conversation outside the Spotted Pig, an English gastropub in the West Village known for chef April Bloomfield’s farm-to-table fare.

“We’ve been waiting for two and a half hours,” says Brian Lomas, an Australian tourist standing next to his wife and their two friends, who perch on a wooden bench, tired from a day of walking through the Tenement Museum. They gaze into the pub’s front windows, watching a couple inside devour a $21 chargrilled hamburger and shoestring fries.

Lomas says even if the price of that burger went up to $25 dollars, he’d still eat it.

“It’s our last night in New York and we’ve heard this is worth the wait. It does smell delicious,” he says as he nods towards the open door to the restaurant.

A 20 percent menu price increase could be a reality in the coming year, as restaurants confront an increase in tipped minimum wage next December, from $5.00 to $7.50 an hour. The three biggest costs restaurants face are labor, rent, and food; when one goes up, the formula has to change.

“It’s a 50 percent increase in labor cost for business owners,” says Andrew Rigie, the executive director of the NYC Hospitality Alliance, a group representing restaurants and hotels across the city. “It’s a challenge.”

Tipped workers still earn less than the state-mandated $8.75 hourly minimum wage, but that’s only part of the story. Workers have historically relied on tips to make up the difference – which doesn’t always happen at the low end, but can happen to excess at the high end, where a server can earn six figures. And the formula ignores kitchen staff altogether, who often make around $10 per hour as line cooks.

According to a report from the Economic Policy Institute, the tipped minimum wage began in 1966, when the Federal Labor Standards Act, which established a minimum wage, extended its reach over tipped hospitality workers. It created the tipped or “sub-minimum” wage for those workers, which meant that tip earnings would have to fill the gap between the sub-wage and the federal minimum wage. If a server had a bad week and earned little in tips, the employer would pay to make up the difference.

Now that New York’s tipped minimum wage is nearing the standard minimum wage, restaurants are cooking up creative solutions to their new budget needs.

“There are a lot of interesting discussions going on about how to cover the costs of labor,” Rigie says. “Price increase is one way, but the customer is price-sensitive. Whether it’s the coffee and the bagel that will go up a dollar, if it’s a steak going up 15 dollars, that will have an impact.”

Rigie has New York diners like Marco Dimi in mind. As he left the Spotted Pig one Wednesday evening, Dimi said he wasn’t willing to pay one or two dollars more for his nine dollar side of roasted Brussels sprouts with bacon and sage—even if it meant that the kitchen or wait staff would make a higher wage.

“I am fine with giving servers a raise, only as long as it doesn’t affect the price of the product. I’m compassionate for people who get lousy pay for hard work, but I get lousy pay, too,” says Dimi, who works in advertising. “I wouldn’t support raising some dishes even a dollar or two. They should figure out how to reduce other costs to give employees a raise.”

Slicing profit margins

On the other side of Manhattan, Porsena, a five-year-old Italian eatery in the East Village, receives its morning wine shipment. Owner and Chef Sara Jenkins unbolts the front door for the deliveryman and points him toward her kitchen staff to get cases unloaded out back. Jenkins spends most of her time in the kitchen here, although her first place, an Italian street food restaurant called Porchetta, is just down the street.

“I could get away with ordering some cheaper items, more bulk wines maybe, before the quality becomes an issue. But I have no control over things like rent or market meat prices,” says Jenkins.

She says it’s not that simple to cut costs as a small business owner, especially when it’s her business to feed people. “We’re working on very thin profit margins and over the past few years, it just seems like we’ve been getting squeezed and squeezed.”

Jenkins serves Roman pasta specialties in the $20 range, and fresh ingredients make the cuisine, she says, as she chops a mound of white onions. She quickly moves from the chopping block to the gas stove, squirts olive oil from a sports bottle onto a cast iron skillet and sprinkles her sliced onion on top. “When the tipped wage increases in December, I will be adjusting to see if I can even survive.”

Jenkins means she may adjust her budget in one of three ways: by shopping for cheaper ingredients without sacrificing quality, raising the price of a few menu items by a dollar here and there, or cutting down on overtime for her staff. “Somewhere I’m going to have to make up $800 to $1200 dollars a week in labor costs,” she says.

Jenkins employs between 10 and 12 servers, she says, as she gestures toward the dining area with her spatula. Her lease space holds about 12 tables.

“This is a little neighborhood place,” she says. “A lot of my customers are longtime Village residents who still live here because they inherited a rent-controlled apartment or got in at the right time. They aren’t going to swallow a 20 percent menu price increase the way customers at bigger places like Carbone would.”

Jenkins is referring to an upscale Italian restaurant in Greenwich Village, where higher-end entrées sell for $60. It’s one of six eateries run by the New York-based Major Restaurant Group.

“I’d like to hear how big places like that are thinking about covering the cost of the new minimum wage,” she says.

Ten such restaurant groups in New York City did not respond to requests for comment.

“They’re still trying to figure out how to manage this,” says Rigie at the NYC Hospitality Alliance. “Many will have to do a complete review of item offerings on the menu. Food costs continue to rise as well and they may have to change the types of products they are purchasing and serving, or take better control of overtime for hours. Some restaurants have discussed potentially cutting back employees or hours.”

Jenkins says she hasn’t considered cutting server shifts, but would consider cutting their overtime.

“It’s my cooks who work long hours and don’t get this raise or any portion of the tips that I really worry about,” she says. Her servers make two to three times the state minimum wage per hour, on average. “I wish I could afford to give all my staff a raise, especially knowing what it’s like to work your way up from a $10 line cook in a kitchen. But I can’t afford to do that and raise my prices unless everybody else does.”

Amanda Cohen, chef-owner of another Lower Eastside restaurant, Dirt Candy, reopened her vegan-friendly restaurant this year and has done away with tips. She charges a 20 percent administrative fee and pays all of her workers $20 per hour.

“Tipping is a shell game that we use to make our food seem less expensive,” Cohen wrote in an email. Her vegetarian main dishes are in the $20 price range, and her appetizers, like the mushroom mousse, go for $13.

“Eliminating tipping would result in no actual price increase for customers, and only a slight increase for business owners due to a marginally higher tax bill,” says Cohen. “If we got rid of tipping, but menu prices went up 20 percent, customers would still be paying the same amount for their meals, their bill would simply be divided differently. Restaurant owners would be making the same income, they’d just be paying their higher labor costs out of this 20% jump in revenue.”

Cohen says the tipped wage laws are simply outdated and should allow for tip-sharing among servers and kitchen staff, or be tossed out altogether.

Check please

Maria Meyotte at the Restaurant Opportunity Center United, a group that advocates for higher wages for food workers, took a break from countless calls to organizers in preparation for a march on Columbus Circle for the “One Fair Wage” campaign. Meyotte said that many food service workers don’t get the kind of tips that would compensate for their lower wages.

“Nationwide, the tipped minimum wage disproportionally affects women and people of color, who live off tips and work full-time near the poverty line,” says Meyotte.

Meyotte and thousands of restaurant workers across the country marched for a $15 per hour minimum wage on April 15. She says the New York State tipped wage increase is a small victory that could make a difference for a lot of workers, but “it doesn’t guarantee that everybody’s making enough to live on.”

One server named Sam works at Ukrainian, family-owned brunch spot just a few blocks from Sara Jenkins’ restaurant in the East Village. “They treat us all really well, like family,” Sam says, when he asks that his last name and the name of the restaurant be withheld. “I wouldn’t want to upset them.”

Sam, and several servers who did not want to speak on the record, didn’t even know they were up for a state-mandated raise.

Other advocacy groups say that’s one way the tip credit can pose a problem.

“The law basically expects workers to keep track of their hours, base wages, tips between cash and credit cards, and calculate their hourly rate themselves,” says David Cooper, an economist at the Economic Policy Institute, a think tank based in Washington D.C. that supports low-income workers interests.

Cooper says since the tipped minimum wage was established, tracking tips has always been a problem.

“It is very difficult for restaurants to track tips, but it’s also very difficult to enforce the tip-credit law,” says Cooper, adding that the burden of ensuring fair wages often gets pushed to servers.

But with the tipped wage increase, new formulas for splitting tips may come to the restaurant floor. Terms of the tipped wage law prevent employers from splitting servers’ tips with kitchen staff. It’s designed to protect servers’ wages, but in high-end restaurants the policy creates a large wage gap between the kitchen and serving staff. Some restaurants may consider following Cohen’s example and charging a 20 percent administrative fee on each check, which would help increase wages in the kitchen and behind the bar, hostess table, or at the servers station.

Still, Sam, a Queens-based actor and screenwriter, says an extra $2.50 an hour sounds great.

“I work mornings five days a week and that raise would mean a couple extra hundred dollars for me,” he says. “But I know for a lot of the people I work with, single moms and dads, that means meals for their kids.”

He pockets $100 to $200 dollars a day in tips, but there are slow days: “There were mornings this past January where we didn’t have a person come in for an hour. That’s unheard of.”

Sam recently took home a check for less than five dollars, after taxes. As much as he thinks the idea of a fair wage for all restaurant workers would foster a good sense of camaraderie between the servers and the kitchen staff, he says he doesn’t want to see tipping disappear any time soon.

“There’s just something about it. When you’re having a good time with a table and you know they’re having a good time, and you nailed it,” he says, “It’s like instant gratification.”

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