New Year, New Service Charge

January 5th, 2017

Early in the Pub’s 25-year history the owners followed a straightforward tip out system to make sure that, on a busy night, the entire staff earned a fair share of the night’s earnings.

At most restaurants, servers and bartenders who receive tips, rake in much more money than the cooks and kitchen staff, who rely on an hourly wage. To spread the money more equitably, the Pub staff pooled tips at the end of the night. The money was then distributed using a system that everyone on staff understood. The tip-pooling practice was believed to foster a sense of teamwork, resulting in better service for the patron.

By 1998, the staff had grown quite significantly in both the front and back of the house. The Pub replaced tip-pooling with a tip-sharing system. In that system part of the server’s tips were distributed to the kitchen staff – the cooks and dishwashers – based on a percentage of the server’s sales.

Both systems appeared to be legal, as far as the state and federal governments defined the law. But now, thanks to a February, 2016, decision reversal from the Ninth Circuit Court of Appeals, hundreds of Washington restaurateurs who employ similar tip-sharing systems are compelled to change how they pay workers to ensure they don’t get sued.

“Welcome to the debate around tip sharing, the latest flash point in the critical discussion the restaurant industry is having around its flawed labor system,” repeats Pub co-owner, Jeff Waite.

Following the February decision, in Washington (and six other states) cooks and dishwashers are now prohibited from participating in tip-pooling schemes. Additionally, the U.S. Department of Labor announced that it would now enforce its tip-sharing prohibitions in all 50 states.

With the given risk, financial consultants and industry experts are instructing most restaurants to stop sharing tips with the kitchen and simply raise wages instead. Raising wages, though, means raising prices — and Waite frets over how much he can raise the price of a burger. “The worst part about it,” Waite goes on, “is I don’t know who this ruling reversal protects.”

Over the past 18 months, in the Seattle Area, where restaurants are booming and minimum wages are already mandated at $15 per hour, many multi-unit restaurateurs have been testing new ways to un-break the system. Introducing an automatic gratuity charge or making menu prices service-inclusive are two methods that give business owners legal control over the money they bring in and distribute to staff. But those strategies result in much higher taxes, and smaller operators are terrified diners won’t take to no-tipping models.

Regardless, many of the most popular Seattle restaurants, and the ones getting much of the press, have instituted a 20 percent service charge on the total bill.

Waite and his staff have devised a hybrid system. “We felt preserving the best parts of both a service charge, for staff wage equity, while keeping a tipping model, for familiarity, was prudent at this moment in time” he explains. Albeit, a much smaller service charge, 5% of the total bill, before retail sales tax, will be collected and distributed among the kitchen workers. A tip line will also be included on the guest check for patrons to add the customary gratuity at an amount that the patron is comfortable with. The tips from the tip line will be kept by the serving staff in accordance with the February ruling. Patrons are reminded that tipping on the 5% service charge (or sales tax) is not necessary.

Waite freely admits that to many, the change will only seem like semantics. “But that is the goal – despite the legal ramifications, our desire is to keep the average guest check from being inflated too much.”

“But if the result is that I have to spend a bunch of time getting involved in the intricacies of defending our tip pool, it’s not worth it. We want to focus on serving great food and drink.”

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