With minimum wage increasing across the country, restaurants are steadily looking at their business models to see how they can meet the requirements from state governments while keeping their business intact. One idea is doing away with tips for servers altogether.
Tipping servers was a concept adopted after the Civil War. When traveling internationally, it is well known that you do not tip servers in most countries. As minimum wage continues to change in states across the country, will tipping be the only "tipping" point in changes to the restaurant industry?
On April 1, the minimum wage in Seattle was increased to $15 per hour. This created new challenges to restaurants in the area on how to stay afloat with the new law.
"Operators are trying to figure out what the new world will look like," said Anthony Anton, CEO of the Washington Restaurant Association, said in a statement. "Nobody knows what the ultimate result will be, but there will be restaurants in Seattle."
One restaurant, Ivar's Salmon House raised the wage of its workers to $15, but eliminated the tips and raised the prices on its menu. Since customers no longer have to tip, the restaurant will share its menu prices with the employees.
"Over the course of the year, our goal is that everybody who works in the restaurant in 2015 will make as much as or more than he or she did in 2014," Bob Donegan, president and CEO of Ivar's, told The Stranger.
Washington isn't the only state battling with the increase of minimum wage. In places such as California and New York, the increase of minimum wage is having a huge impact on the state of the restaurant industry. According to the National Restaurant Association's 2015 forecast, the two states combined have a total of 2.4 million food service workers.
California, which ranks first in the nation with 1.6 million restaurant workers, will see the minimum wage increase from $9 to $10 on Jan. 1, 2016. Along with Washington and Oregon, California has no tip credit.
"We are paying the full freight here, even for tipped employees," employment lawyer Janet Grumer told Nation's Restaurant News.
Many California cities such as San Francisco, San Diego and Oakland have already increased the minimum wage above the $10 that will go into law in the next year. Such is not the case in Los Angeles, one of the few cities in the state whose city council continues to debate and reject proposals for an increase to the minimum wage. The most recent measure is to increase the minimum wage to the proposed $13.25 or $15.25.
Restaurateurs, for the most part, don't have an issue with paying the increase in wages. However, they do want tips to be counted in those wages, which is currently prohibited in California.
"We're willing to pay people to get them to minimum wage," restaurant owner David Dickerson told lawmakers. "We're just asking that tips be part of the equation."
In February, New York raised the wages for tipped workers. Wait staff at restaurants will earn $7.50 before tips beginning Dec. 31. Currently, servers make $5 an hour compared to $8.75 for nontipped minimum wage workers.
"This drastic 50 percent increase in labor cost is sure to have a significant impact on the economic viability of many restaurants and force the restaurant industry to consider various new operational and compensation models for tipped employees," the New York City Hospitality Alliance said in a statement.
Like Ivar's in Seattle and many other restaurants across the country, some New York restaurants have changed their business model.
At Dirty Candy in New York, chef-owner Amanda Cohen eliminated tips and instituted a 20 percent "administrative fee" to each patron's bill. Servers are also paid $15.
"Everybody works for me," Cohen told The Washington Post. "I should be the one to pay them."
