.jpg;w=960)
When the pandemic hit in March 2020, restaurant owners everywhere had to adapt their business models to mitigate the challenges brought on by supply chain disruptions, rising property and production costs and COVID-19 regulations. For some restaurant owners in Colorado, however, the biggest threat to business is the state’s minimum wage laws which, historically, have increased the minimum wage by a small percentage each year.
In January 2015, the minimum wage in Colorado increased from $8.00 — the minimum wage in 2014 — to $8.23. By 2021, the number had risen to $12.32 and, in January, it is expected to increase an additional 1.9%.
According to Alec Schuler, owner of Tangerine Restaurants, however, the incremental increases to the tipped employee minimum wage are what pose threats to the traditional economic model of restaurants. The minimum wage for tipped employees, which stood at $5.21 in 2015, is now up to $9.30 and is also expected to increase next year.
Although Schuler supports increased minimum wages, he’s had to raise his tipped employees nearly $4 an hour within the last five years, which has had massive implications, he said.
Specifically, the problem lies in the fact that, today, tipped employees — in the restaurant industry, these are generally the workers that customers come into contact with while dining — are earning a higher minimum wage on top of the tips they make during a shift. Compared to the flat $12.32 that back of the house restaurant workers, or people working in the kitchen earn without tips, front of the house workers have an opportunity to make significantly more money.
As a result, “all my tipped employees are making out really well,” Schuler said, “but my kitchen staff is making less money and they are arguably more skilled. My best chef makes around $20 an hour and I have a waitress who’s 20 years old — she’s great, she’s an awesome worker — but she might make $32 an hour on the weekend because of tips.”
To compensate for the pay disparity between his restaurants’ back of the house and front of the house workers, in July, Schuler implemented a 4% kitchen fee which gets tacked on to the bottom of a Tangerine customer’s bill — a necessary attempt to raise revenue without increasing prices on the menu, he said. Schuler allocates the money customers pay in kitchen fees to his back of house workers.
“(The kitchen staff) all got a raise and they deserve it,” Schuler said, “and with the way the labor market has been, if I didn’t implement the raise proactively, then I may have lost some people in the kitchen.”
According to Schuler, adding these kinds of fees to customer bills to help with pay inequality within the restaurant is a trend that he’s witnessing in the rest of the industry, although various different models are being tested out.
“(Restaurant owners) are trying different models and I think the main driver for this goes back to the minimum wage increase and all of these small ones in between,” Schuler said. “Some restaurants are adding small percentages onto the bottom of the bill or they’re adding large percentages and saying don’t tip.”
According to Josh Dinar, owner of several Denver metro area restaurants including River and Woods and Ashkara in Boulder, the traditional economic model of restaurants doesn’t make any logical sense — specifically, in regards to the minimum wage for tipped employees and the practice of tipping — in that it doesn’t allow for people to be compensated fairly for the work they do, he said.
To combat this, Dinar has implemented a fair wage fee model in several of his restaurants, he said, where a 20% fee gets applied to the bottom of the bill and, in turn, the customer is not expected to leave a tip.
Although Colorado minimum wage law only requires $9.32 to be paid hourly to tipped employees, according to Dinar, Colorado law prohibits back of the house from receiving any of the tips that those individuals make.
Following Dinar’s fair wage model, all restaurant employees earn the full $12.32 hourly. Then, the money raised from the 20% fee is used to supplement each employee’s hourly wage. By using this model, “we can share that money from the fee — which is essentially revenue for the restaurant — among our labor and give everybody, including the front and the back of the house, a much more equitable payment,” Dinar said.
If a customer is especially satisfied with the service they’ve received, they can leave additional tips for whoever waited on them which that worker can keep, Dinar said. However, “tips are no longer expected or required or necessary to make (the fair wage) model work.”
“A lot of restaurants are doing this now and I think it’s a movement that’s happening certainly in Colorado and primarily in states where the tipped minimum wage is much higher and closer to the regular minimum wage,” Dinar said.
According to Dinar, particularly since the beginning of the pandemic, there’s always been a great need for restaurant owners to collaborate with one another and communicate about which economic models are working and which ones are not.
“I think, overall, the restaurant industry is a very collaborative community,” Dinar said. “Everyone kind of knows the hell that everyone else has been through, generally speaking, and everyone wants to help others as much as possible and help the industry as a whole, which ultimately comes back to you.”
Specifically, Dinar’s goal to pay all his employees a sufficient living wage “so that they can support themselves and live well and create hospitality as a career,” is, across the board, what every restaurant owner wants, he said.
However, in attempting to achieve this goal, the variety of differing economic models restaurant owners now employ sometimes create confusion among customers who aren’t sure of each restaurant’s tip expectations, which creates a communication obstacle for restaurant owners, according to Dinar.
“We always have the challenge of explaining, as clearly (and concisely) as possible, why we’re doing what we’re doing with the service fee,” Dinar said.
At Dinar’s restaurants, a card is given to customers with an explanation of the fair wage fee and what it’s intended for. However, due to the fact that not every restaurant uses this economic method, customers sometimes think they’re being taken advantage of when hit with this fee, Dinar said, which is not what he nor other restaurant owners are trying to do.
“We are just trying to figure out what the new model is that makes sense in the given economy so that people can make a good living in the industry and it can continue,” Dinar said.
In the Longmont Leader’s conversations with both Dinar and Schuler, the word broken was used to describe traditional restaurant economics.
“Not a lot of people realize it’s such a skewed system,” Schuler said. “I’d love for the general public to realize that tipping is such an odd, and I’d even say broken, model.”
