How Restaurants Can Do Away With Tipping For Good

On Labor Day this year, California governor Gavin Newsom signed into law a bill called the FAST Recovery Act. Also known as Assembly Bill 257, it's the first step toward more equitable wages for fast food employees across the state and could potentially raise the minimum wage from $15 to $22 per hour.

Not everyone was happy; many believe the FAST Recovery Act could have a detrimental effect on business owners. "The bill was widely criticized by the restaurant industry as unfairly targeting restaurants and punishing some small businesses (franchisees of large chains) but not others," wrote Nation's Restaurant News.

But as we all know, wages have been stagnant for years, especially in the service industry, so much so that many frontline workers depend heavily on tips to survive.

"I remember a co-worker crying at the end of her shift, because she hadn't earned enough in tips to pay the babysitter," wrote Michelle Alexander, a lawyer and civil rights advocate, about her experience in the restaurant industry many years ago.

Tips used to be something that aristocrats in Europe paid their service employees in addition to their regular wages for a job well done. When the idea migrated to the United States, however, it morphed into something else entirely. Tips became a loophole for American restaurants to not have to pay their employees, particularly minority workers, because tips from diners subsidized their wages. As a result, this subminimum wage became an acceptable norm for tipped employees.

MIT's Living Wage calculator states that a living wage for a family of four is $16.54 per hour. Because of this, "The minimum wage does not provide a living wage for most American families," it explains. "A typical family of four (two working adults, two children) needs to work nearly four full-time minimum-wage jobs (a 75-hour work week per working adult) to earn a living wage."

That's because as of 2022, the federal minimum wage is still $7.25 per hour, the same as it was ten years ago. Each state has its own wage laws and minimums, but many are grim: 19 states still pay their employees the federally mandated minimum. Two states (Georgia and Wyoming) pay even less than that. Only six states pay close to a living wage, and only ten states require employers to pay the state's minimum wage before tips.

Certain states allow restaurant workers to be paid as little as $2.13 per hour by their employer as long as they work in an environment that collects tips. If the tips and the $2.13 don't add up to the federal minimum wage, the employer must make up the difference, but they're still not paying the $7.25 in full.

It's clear that the racist history of tipping has perpetuated well into the 21st century, loosening the socioeconomic fabric of our society.

No one understands this better than Bonnie Morales, co-owner of Kachka, based in my hometown of Portland, Oregon. In January 2022, Kachka rolled out a unique initiative that it called a wage equity plan under which Kachka employees are guaranteed $25 per hour and free health insurance. To accomplish this feat, the restaurant instituted a 22% service charge in lieu of tips.

When asked how the plan was received by the community, Morales said it was going "surprisingly well."

"We rolled out the program in January, and by August, we had our first profit share meeting and we were able to pay dividends to our employees," she said. "That was huge."

Morales explained that employees have responded positively to the changes. "We did experience some turnover with the front of house staff," she said, "but for the most part, many of our employees bought into the idea. They truly believed in it."

Of course, to do away with tips for good, you can't ignore the potential pushback from customers.

"This is something to be expected," said Morales. To a diner, there's a difference between including a tip—which they can control—versus seeing a 22% surcharge automatically added to the bill. Communicating the unconventional system to guests is an important part of the process.

"We have signs on our table, on our QR codes," Morales explained. "We also have notices on OpenTable when people make reservations and also when they confirm [them]." This multi-angle approach is part of what has made Kachka's equity plan successful thus far.

The message is resonating with many restaurants around town. "I've had so many conversations with other restaurant owners since we rolled out the plan," Morales said. "Many of them want to know how to execute this model. And the reason they haven't rolled out something similar already is because, like me, they thought they would get a lot of pushback from the customers."

Yes, customers can be cranky, and they can have a problem with even a 4% surcharge, but at the end of the day, it's in the name of eradicating a system that has been unjust for decades by design. Aside from Kachka, other food establishments around the country have instituted similar programs, including Good Good Culture Club in San Francisco and Nostrana in Portland. (Nostrana's equity plan is not on its website, but is listed on the menu and the reservation system).

Other efforts have been made for a more equitable pay structure, including Oddly Correct coffee bar, which in 2019 announced a guaranteed $18 minimum per hour after a base rate plus tips. Like Kachka, Oddly's been vocal about its compensation structure and has seen some success with the new approach. In a world where we've become so accustomed to controlling the livelihood of those who serve us, it's extraordinary when any business can forge a viable escape route from the oppressive status quo. And it's only the beginning.