Our Wage Models are Broken

Our Wage Models are Broken
Andrea Borgen Abdallah

By Andrea Borgen Abdallah

It’s no secret that with a workforce mass exodus and rising minimum wages, the restaurant industry is long overdue for an overhaul of its business structure and compensation model.

This isn’t an easy conversation to have. The institution of tipping and the existence of the sub-minimum wage is heavily rooted in slavery, and has led to decades of underpaying a workforce that is majority black, brown, and female. The practice has proven to increase instances of sexual harassment, reliance on food stamps, and continues to uphold the financial instability of so many employees in our industry.

Instagram Post by One Fair Wage @1fairwage_official
Source: @1fairwage_official on Instagram

Everything about how restaurants are structured has been built around this model, and the historically razor-thin margins don’t provide a lot of wiggle room for those looking to initiate change.

Rethinking Wages: Where to Start?

That’s where RAISE comes in. Our coalition of restaurant owners across the country come together to share best practices about wages and benefits. They push the envelope on what an equitable and sustainable future can and should look like, for all of us.

This conversation starts with wages:

  • Eliminating the sub-minimum wage (still legal in 43 states nationwide)
  • Distancing ourselves from a reliance on tips to make up a majority of our employees’ wages
  • Stepping towards a future in which restaurant jobs are stable, professional, and provide opportunities for continued education and growth

These adjustments aren’t easy, especially without the support of policy change that helps level the playing field. But they are important. And we’re here to help support any operators who may be interested in learning more with one-on-one wage model training, racial equity toolkits, and other resources that may help evolve and improve our collective employment practices.

Our goal is to help operators:

  1. Move away from a reliance on tips as the principal means of compensating employees, and move towards a model that ensures a living wage for all.
  2. Bridge the pay gap between kitchen and waitstaff, building a more equitable workplace.

Alternative compensation models aren’t one-size-fits-all, and it’s important that every business makes the choice that works best for its concept, market, employee population and audience. So, here are some best practices and takeaways for those who are interested in learning more about the various options available.

The Tip Pooling Model

After the FLSA updated its guidance in 2018, it became legal to share tips across hourly employees, as long as they’re all paid the state’s full minimum wage. In other words, tips can legally be split between kitchen and waitstaff. (The only exceptions to this rule are in New York and Massachusetts, where state law continues to overrule federal law).

In a tip pooling model, the restaurant pays employees a base wage and tips are distributed across all hourly non-exempt employees. This is often based on a points model, calculated using the job category and hours worked. It is important to keep in mind that tips often need to be distributed on a shift-by-shift basis (this varies based on local labor laws, so check what is required in your market).

Logistically, a tip pooling model is often the most appealing: there are few guest-facing changes that need to be made, there are no additional taxes or fees that need to be considered, and the administration tends to be pretty straightforward. Your current tip out model can simply be expanded to include the entire house, rather than just the front of house.

However, this model doesn’t fully address the inequities of tipping, or the day-to-day, week-to-week instability it can introduce to your employees’ paychecks.

The Service Charge Model

Service charges have been rapidly gaining popularity across the country, and for good reason: guests have become much more open to the 15-20% automatic fee. Restaurants have enjoyed a newfound flexibility with investing the charge into higher wages, “commission” across hourly employees, or better benefits for the entire team.

Service charges are considered restaurant revenue, so make considerations when choosing to implement this model, including sales tax, overtime, payroll tax and workers’ comp implications.

Operators continue to embrace this model at a rapid clip. They tout the stability and security it offers the business and its employees – no one is left at the whim of a guest’s mood or the size of their tip. And it achieves many of our previously mentioned goals, like preventing bias from impacting employees’ paychecks and providing a pathway to invest in the future of the workforce.

Paving an Equitable Path

This list is by no means exhaustive. There are a variety of ways restaurants are re-thinking wages, including hospitality-included models, healthcare surcharges, and profit-sharing. That being said, these two models are the most popular and have consistently had the most mainstream success in our conversations with operators.

We continue to hear feedback from restaurants who have employed some combination of the above models. Their employees are healthier, happier, and more likely to stay and grow with the company. This reduces turnover, lowers recruitment and training costs, and substantially improves the quality of the workforce and guest experience.

In light of the last several years of upheaval, we’re hopeful that our industry will be able to bounce back from the hardship it has faced, and pave a more sustainable, equitable path for us all to enjoy.

If you’d like to continue to learn more, please schedule a one-on-one wage model training, or join us for our RAISE Member Call on Feb 28, 2023 at 10 am PST. We’ll do a deep dive on service charges, speaking with 3 panelists on how the change has impacted their business.

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Andrea Borgen Abdallah
Andrea Borgen Abdallah

Andrea Borgen Abdallah is a former restaurant owner, and current mission-driven hospitality consultant focused on the intersection of restaurants, social justice, and public policy