The end of Restaurants? Tipping and Precarity in Food Service

An empty restaurant in Pennsylvania, US.

by douglas reeser
February 26, 2021

The restaurant industry has been in the news a good deal in the past year. If you haven't heard, the COVID pandemic has hit the industry especially hard. As places where people gather and socialize, restaurants have been identified as potential sites of spreading the virus. Onsite dining was shut down for months throughout the country, in many cases forcing owners and managers into the difficult position of re-imagining their business model. Even with on-site dining increasingly allowed, many states are restricting restaurants to outdoor dining or only a percentage of indoor capacity, usually somewhere between 25% and 50% depending on the locality. Restaurants need people to stay in business, and the pandemic has made it extremely difficult to host those people.

In earlier 2020, restaurants in the US were eligible for the federal Paycheck Protection Plan, and that certainly helped many businesses and their employees get through the first few months of the pandemic. The problem is, for most, those funds were basically dried up by June, yet the virus continued on its surge around the country. Further, the funds from the PPP were to be used for employees, and restaurants, notorious for running on thin margins to begin with, have a whole lot more to pay for than their employees. And with business generally down across the industry, making ends meet became difficult. To this end, over 100,000 restaurants in the US are reported to have closed in 2020.

An industry that is well known for running on tight margins has been seriously tested in the past year, and it's not clear if it's going to get any easier any time soon. The issues that restaurants are facing are evolving, bringing more precarity to an already stressed industry. A recent article in the New York Times (you can read the article without a paywall at boston.com) reports that servers are facing even more hostility than ever during the pandemic, and the experience of being asked to de-mask for tips is just one aspect of the reported 40% increase in unwanted sexual comments from customers. The article, titled "Is this the end of tipping?" notes that more than 80% of servers have reported that their tips have decreased during the pandemic, and claims that more and more people are leaving the industry. Another report stated that 59% of restaurant worker respondents in NY City say their tips have decreased by at least 50%.

Another issue to monitor is the potential hike of the national minimum wage to $15/hour. The restaurant owners that I know are all nervous about this hike and generally don't know how they will be able to adjust when margins are already so tight and business is mostly down. One owner of three restaurants said to me about the wage hike: "I don't know what I'm going to do. It's got me really nervous, and I don't see how we're going to be able to do it." So with all of these issues, is this the end of restaurants? 

In my own experience in the industry, I made it a point to create a model that had equity and fairness as its base. I began with staffing. A common critique of the industry is the fact that the kitchen staff mostly earns far less than the servers. It's an interesting aspect of restaurants that they typically pay kitchen staff minimum wage, with some increases the closer you get to being a head chef. Then, on the service side, most restaurants use a tip credit model in which they pay servers well below minimum wage (usually around $3/hour or less) as long as their tips bring their wage up to the minimum wage. Despite the low hourly wage, tips are the lifeblood for servers, and they typically earn well above the minimum wage, especially as the menu items increase in cost. In essence, it is common practice for a restaurant to pay the people making the food and cleaning up as little as they legally can, and then rely on the public to pay the bulk of their servers' salaries. 

Such situations are widely known to create rifts between the different parts of staff, of course leading to tension and a less-than-ideal working environment. The wage disparity makes little sense to me, as everyone involved is equally important to a successful venture: if the service stinks, the customer is unhappy; if the food stinks, the customer is unhappy; if everything is dirty, nobody is happy! 

So I tried a few things with the aim of building a happy and reliable staff. I made it a practice to get people to a $10/hour base wage early on in their employment. Next, I instituted a tip pool for the entire staff (outside of management), so that everyone split tips, from the servers to the kitchen staff. Having an open kitchen was an important piece, enabling the kitchen staff to actually have some customer interaction. And service staff poured beers and drinks for people, but also rotated through a number of other duties through their shift - an hour pouring beer, an hour running food, an hour doing dishes (!!), and an hour clearing and cleaning tables. This had the effect of bringing the entire staff into a closer working relationship.

From my perspective, this system worked really well. For starters, I had very little turnover of staff. In over 5 years, only around 6 or 7 people move on to something different. This in an industry that is notorious for high staff turnover. Why? Well, in our restaurant with a modestly priced menu (all local, mostly organic food, with a new menu every week consisting of small plates, sandwiches, and a large plate or two ranging in price from $8-$18 per plate) tips averaged about $12/hour, and that's for everyone. That meant that the entire staff was making on average a bit over $20/hour, sometimes a little less on a slow night, and very often a bit more, especially on our busy days.

The staff was generally happy with the wages they were bringing home, and they knew there was equity and everyone was going home with that fair wage. But I don't believe it was only about the money. The rotation during shifts proved popular as well, as each move provided a break from the monotony of doing the same thing for hours on end. It also provided breaks from customers! How can I be sure the staff was happy with this setup? I also instituted regular staff meetings, and often held impromptu meetings after shifts where, as the manager, I sought out the input and advice of the staff. The meetings allowed for grievances to be aired and for suggestions to be heard. The staff actually helped to dial in our methods. I created a system in which staff had a voice, and I made it a point to listen and act on their needs and ideas. And like I mentioned, I had very little staff turnover. 

So is something like this enough to keep people working in the industry? Can restaurants afford to pay these kind of wages and still stay in business? From a justice stand point, I have a difficult time believing that a business should exist that does not pay people enough to live on. It's well established that minimum wage does not cut it today, so the pay situation has to be addressed somehow. The industry has no future if what are essentially exploitative wages continue. But with margins thin - food costs are high and rising, rents are high and rising, utilities are high and rising, dry goods costs are high and rising - how can restaurants adjust? I can't claim to have an answer, but I think these questions reflect the very same issues that many businesses and households around the US are facing. If it is the end of restaurants, then I think it's the end of many aspects of our current way of life. The economics are just not making much sense anymore. How can some people accumulate wealth and live in comfort on the backs of others who suffer to get by. It's a bit of rhetorical question, but one with overlap with so many other things: Is this the end of restaurants? A further question: Is it the end of capitalism?