Restaurants Beat Labor Crisis with Daring New Wage Structure

restaurant labor crisis back of house dishwasher

Restaurants Beat Labor Crisis with Daring New Wage Structure

If you are reading this article, you probably know that restaurants are facing turmoil as the most severe labor crisis ever experienced is hitting the industry. In April alone, restaurants lost 681,000 workers to attrition, and while the hotel and restaurant segments are hiring in the hundreds of thousands, the turnover rate is still at an all time high

Dining rooms are reopening and with the promise of return to normalcy just a few days away, the unprecedented staffing shortage is dampening the hope of economic recovery. A lack of workforce could easily derail many restaurants’ reopening plans, particularly small and independent establishments. Profit margins would almost certainly shrink as businesses would be forced to reduce opening hours, eliminate tables, make guests wait or even push back reopening altogether. 

Big or small, restaurants are scrambling to come up with ways to attract and retain workers. Those who can afford it are offering one-time incentives like signing and retention bonuses, while others are trying to lure workers in with free food. Small to medium sized restaurants that are already cutting it close are cross-training or finding creative ways to make do with whatever staff they have left. 

The labor shortage has brought with it a sense of reckoning. For years, the restaurant industry has treated servers, line cooks, dishwashers poorly, to put it mildly. Few establishments are now considering raising wages, offering employee benefits or improving the working conditions. But it’s going to take more than a few. 

With the pandemic raging in the background, people are no longer willing to obscure the realities of this line of work. That explains why they are quitting in droves or not coming back to work after being laid-off. Many have found higher paying jobs elsewhere where they are not exposed to COVID and have more humane working conditions.

There is a way out of this labor crisis, and it’s going to take more than simply “adapting” to a temporary reality. To get workers back, restaurants will have to make a real change. Increasing wages, gradually introducing automatic gratuity, sharing the tip pool with back-of-the-house (BOH) employees, improving the working conditions, investing in cross-training, and reducing staff are all good solutions. It takes a lot of guts to fight for change. Those who do it, will become leaders of a new, fair and equal restaurant industry.

Table of Contents

How Did Things Get This Bad?

restaurant labor crisis mandatory tipping

To understand the labor crisis, an obvious place to start is with the outbreak of the COVID-19 pandemic. Thousands of restaurants were forced to close for good while others had to make the agonizing decision to let go of valued staff and reduce their workforce. By May 2020, the industry shed 5.9 million jobs. 

After months of hanging in there, many laid-off restaurant workers finally decided to leave the profession. Some took the entrepreneurial path, others looked for alternative employment in different sectors and entered the logistics or construction industries where they had a bevy of remote options. 

A controversial issue is the unemployment benefits. There’s the $300 weekly unemployment boost extended through the beginning of September in President Joe Biden’s $1.9 trillion American Rescue Plan. And there’s also the cost-free or affordable health care via the ACA marketplace that many laid off workers are now entitled to. From the restaurants’ perspective, this obviously puts a dent in their hiring efforts. But from the workers’ perspective, if returning to work means forfeiting those government subsidies for the sake of lower wages then there’s very little sense in doing so.

The truth is that this current labor crisis might be the ultimate wake up call for the restaurant world. Heck, it might even be the perfect opportunity to fix some of the structural issues around wages and working conditions in the foodservice industry. Many workers have been asking themselves why they would choose to go back to work in an industry that has failed them time after time. It’s easy to pin the blame on COVID when in fact all it did is exacerbated massive underlying issues that have existed in the industry for decades. 

Wages are too low, health-care and other benefits are non-existent, there’s no room for professional growth and the industry as a whole is extremely unstable. All of these have long contributed to disproportionately high turnover rates. Add to that the high-stress shifts in hot kitchens and the fact that with the introduction of curbside takeout and delivery, already understaffed BOH teams are now more stressed than ever and with even more responsibility.  

For undocumented workers the situation is even worse. These workers are too often victims of unsafe working conditions, wage theft and employer retaliation. A troubling report by ALC found that lack of workplace protections for reducing the spread of COVID has made many of California’s immigrants and people of color worried for their health, as well as for not being able to support their families if they got sick. Even more troubling is the fact that despite their obligation to inform workers about the coronavirus-related benefits available to them, such as paid sick leave, more than half of employers fail to do so. 

But perhaps the most disquieting issue is the fear of retaliation that’s leading many restaurant workers to not speak up about COVID concerns or symptoms. And they have good reason to worry. In many restaurants, workers cannot physically distance themselves at work and in some cases are not provided with face coverings or protective equipment. 

COVID poses a risk not just for the employees themselves but for their families, too. Immigrants often live with their extended family in small houses where the risk of contraction is high. This is especially true in the Bay Area, where rent is as high as it is.

With buses and trains out of circulation due to COVID, workers were forced to commute even longer to get to the restaurants where they work. If there’s a job opening near them it’s no wonder they take it. This obviously didn’t help stall the labor crisis.

All considered, if workers have a safer, closer, higher paying alternative, leaving the restaurant industry is a no-brainer. 

Another long-standing issue in the industry is the countless reports of sexual harassment. The sad reality is that tipped workers are in a vulnerable position and are often reluctant to push back against unwanted sexual advances or other poor treatment because their compensation is tied to the customer’s happiness. On top of that, the pandemic saw a harassment spike, with women, especially women of color, now reporting numerous cases of “maskual harassment”. 

The pandemic also exacerbated the implicit bias in tipping and the subminimum wage divide between white males and people of color. During 2020, white male restaurant servers made on average $5 more per hour than Black women. Meanwhile, more than 80% of workers reported seeing a decline in tips. You do the math. 

The restaurant industry is obviously not solely responsible for amending all that is wrong in society. Movements like MeToo, Black Lives Matter or the AAPI Hate have helped surface some long-standing issues that so many workers – in the restaurant industry and outside it – experience on a daily basis.

However, the restaurant industry is responsible for creating a better future for the thousands of servers, line cooks, bussers, dishwashers and janitors that form the backbone of the foodservice industry. The labor crisis has made one thing perfectly clear – while they are largely invisible to the dining public, without these workers willing to perform backbreaking work day after day, not a single restaurant would be able to open its doors. 

And if morals are not enough, restaurants that treat their workers fairly and equally make more money. It’s as simple as that. If you’re running a restaurant you know that the fate of staff and the fate of the restaurant are intertwined. Happy, well-paid, supported and fulfilled workers lead to low turnover, engaged diners and successful restaurants.  

Restaurant Workers Deserve Higher Wages. Period.

restaurant labor crisis back of house workers demand higher wages

Restaurant workers need higher wages. Period. Setting other issues aside for a moment (look out for our next article on the 5 best strategies to retain workers during a restaurant labor crisis), the number one issue preventing workers from returning to work is the low wage.

The problem is that small independent restaurants have been through a lot with COVID and they don’t have reserves. We can’t all be Chipotle, offering “All Crew Bonus program” and paying employees more than $13 million in tuition support.

So where are restaurants supposed to find the money to increase workers’ wages? 

There are two ways:

  1. Sharing the tip pool with BOH
  2. Auto gratuity

Before you blow a gasket, consider the following. There is no going back to the way things were before COVID. It’s only going to get harder to find subminimum wage workers who’d be willing to do 12-hour shifts in subpar conditions while denying them the possibility to share in the tips that FOH servers are making. Especially now that the restaurant labor shortage is proving just how essential these BOH workers are to the entire industry. 

As for the tips themselves, workers deserve the security of knowing what they are making when they come to work. But the level of bias that exists in the practice of tipping means workers can never rely on a steady, predictable income. Clearly, the entire tipping and wage system is unsustainable.

Making tipping mandatory at your restaurant and sharing those tips with BOH staff is the best way to get workers back without hurting your margins. More than that, it’s the best way to retain workers and reduce your turnover – saving you even more in hiring and training expenses. Here’s how. 

Sharing the Tip Pool with BOH

In a previous article, we talked about the future of tipping in a post-COVID world. We saw that tipping laws vary across different states, which is itself an indication of the precariousness of tipping. Now let’s revisit the issue in the context of the labor crisis.

Up until very recently, California was one of 7 states (also Montana, Nevada, Minnesota, Oregon, Alaska, and Washington) that eliminated the practice of tip credit and instated one fair wage. 

Tip credit is when an employer counts workers’ tips toward their minimum wage. In most other states, employers may pay employees less than the minimum wage, as long as the employees earn enough in tips to make up the difference. It also used to be legal for owners, managers or supervisors of the business to share in their employees’ tips. 

Think about this for a minute. The FLSA (Fair Labor Standards Act) generally requires covered employers to pay their employees at least the federal minimum wage, which is currently $7.25 per hour. The one exception is tipped employees, who are usually the lowest-paid, most vulnerable workers in our society. Under this law, restaurant operators can pay tipped employees as little as $2.13 per hour.

Many people and organizations have fought to amend this law and in 2018, Congress enacted a variety of amendments to the FLSA. One of the key amendments prohibited employers from keeping tips received by employees for any purpose, “including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.” 

In response to this amendment, in 2019 the Department of Labor (DOL) sought to amend various regulations concerning tipped employees, which ultimately resulted in this most recent development – on Tuesday, December 22, 2020, the DOL announced a final rule that would make it legal for some restaurants to implement mandatory tip pools—and force front-of-house servers and bussers to share their earnings with the cooks and dishwashers in the kitchen.  

Auto Gratuity: Taboo or Life Saver?

Among all the issues plaguing the restaurant industry, auto gratuity is probably the most contentious one. Introducing mandatory tipping at your restaurant can be taken as a radical proposition but it is one that will enable the entire restaurant industry to get past the labor crisis and start again, this time more fairly and sustainably. 

Mandatory tipping coupled with sharing the tip pool among all employees is not only more fair, it is also more profitable. From a business perspective, this will help cut down on labor costs and allow restaurant operators to pay BOH and FOH employees higher wages without it coming out of their own pockets.

The number one objection to auto gratuity is that it isn’t always well received. Customers range in their reactions but many might see it as an infringement on their liberties as guests, or the restaurant industry using customers to pay staff. Especially if the service was not great, diners can easily be offended and want to rebuke the tip, never revisit the establishment or vent by writing a crushing Yelp review.

It is sad that fear of guests’ reactions is what’s preventing many restaurants from initiating a wage system that is more profitable, fair and sustainable. It indicates just how fragile and unstable the restaurant industry is to begin with, how thin margins are as it is and how little restaurant operators are willing to risk for a better future. 

There’s no doubt that independent restaurant operators are stuck between a rock and a hard place. On the one hand, they would have loved to pay employees an hourly wage of $18, even $20 dollars. On the other hand, asking customers to pay higher menu prices or adding auto gratuity to their bill might make them mad about having to carry workers’ payroll and send them looking for a cheaper alternative. And in today’s reality, customers have endless dining options. Indeed, if not done correctly, making tipping mandatory at your restaurant can backfire and shift demand to big chains that can absorb the salary increase.

If successful, however, auto gratuity is revenue that can go toward payroll and be a real lifesaver to get you through the current labor crisis. 

So how to go about it? Start gradually. Add a tiered service charge to customer bills as a suggestion – 10% for a grocery item, 15% for takeout and 20% for dine-in. This will help ease customers into the new system. After a while you can move to a uniform 20% fee.

Next, customers must feel they are getting an added value out of the price increase. Whether it’s a better menu, the hospitality or the restaurant design, customers should feel like they’ve just been to an exclusive dining experience. They need to know that what they’re paying for at your restaurant is something unique that they couldn’t have enjoyed anywhere else.

Finally, transparency is the absolute foundation of the whole system. Customers deserve to know what they’re paying for. The more they know, the more they’ll appreciate it and the more willing they’ll be to pay for it. Inform your customers that they are dining at a fair and equal pay restaurant and thank them for choosing to spend their money toward a good cause. Social media is a great tool to not only highlight your food but the people making it happen. 

To learn more on how to successfully introduce mandatory tipping at your restaurant, look out for our next article on the 3 winning tips to get your customers on board with auto gratuity. 

A Brighter Future for the Restaurant Industry

The labor crisis sure makes things grim now but there’s hope that we’re heading toward a more equal, fair and sustainable restaurant economy. Those who are daring enough to make a difference could significantly narrow the gap between front and back of the house workers, who are usually low-wage people, immigrants and people of color. Many restaurant owners are already leading the paradigm shift, fighting for better business habits and new attention to workers’ needs.

Whether we focus on survival or long-term change, we hope that going forward the restaurant industry would adopt a more mindful approach to its workers, creating better, fairer and happier working environments for all. 

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