This week One Fair Wage (OFW), known for its aggressive and controversial tactics to advocate for ending tipping and the tip credit, released a “How-To Guide” for restaurants to adopt a flat minimum wage, like the Raise The Wage Act’s goal of $15 per hour.
But the organization’s catchy moniker is less appealing and more harmful to restaurant employees than it sounds. The new guide proposes three roads to paying a flat minimum wage instead of the traditional base wage plus tips: just eliminate the tip credit with no change to tipping; add a 15-22% service charge to every check to pay for the higher minimum wage that comes with eliminating the tip credit; or turn to a no-tipping model and raise menu prices to account for rising labor costs.
What’s wrong with these recommendations? Actual tipped employees reject the strategies One Fair Wage suggests because they already earn far more than minimum wage under the traditional tipping system. In addition, efforts to move to a flat minimum wage reduce tip income as guests are informed about the policy shift, and in some cases, are told they are not expected to tip. A few of OFW’s restaurant partners have already tried these “strategies,” and gone on the record saying they are unsustainable.
OFW Strategy 1: Pay “One Fair Wage,” a.k.a. a flat minimum wage, regardless of whether or not they earn tips for their service.
The problem? The economic literature is clear that many businesses can’t sustain a steep hike in wages without adjusting other areas of their business model — they reduce hours or layoff workers, or close entirely. Tipped employees also see tip percentages fall when tip credits are slashed, as restaurants notify customers of their new wage policies either through menu price increases or service charges, or tell guests they are not expected to tip. As a result, a Census Bureau analysis across states with varying tipped wage levels finds tips and overall income decrease in proportion with tipped minimum wage hikes.
OFW Strategies 2 & 3: Pay “One Fair Wage” and add a 15-22% mandatory service charge, or raise menu prices and eliminate tipping altogether.
Many restaurants, including One Fair Wage partners like Danny Meyer, Tom Colicchio, and David Chang have tried these strategies, and realized they don’t work in practice.
Danny Meyer, CEO of Union Square Hospitality Group in New York City, tried to eliminate tipping and paid his service staff a flat minimum wage starting in 2015, and used the price hike strategy to offset rising costs. He ended the policy within the year, noting that he lost 40 percent of his “legacy” staff over the change.
One of his former bartenders explained: “It wasn’t what we signed up for financially.”
Another employee reported she lost roughly $10,000 in annual earnings as a result of no tipping.
Meyer said raising prices enough to cover the increase in labor costs was unsustainable for his employees and customers, and his price hike didn’t cover the costs of the wage hike and desired benefits:
“If you’re used to paying $26 for the roast chicken at Union Square Cafe…we really should have been charging you $42…”
David Chang attempted to go tip-free in his New York City Momofuku Nishi restaurant in 2016, but shortly reversed this decision, saying prices would no longer include gratuity for staff:
“We think a tipping model will benefit our guests and staff.”
Tom Colicchio tried raising prices to accommodate a no-tipping, flat wage policy, but also found it was untenable for his employees, ending it after a year.
“Servers would have to make $55 per hour” to make up for lost tips due to the flat wage policy. “Staff and clients didn’t want” the no-tipping policy.
San Francisco restauranteur Thad Vogler also raised servers and kitchen staff to a flat minimum wage, and implemented a price hike to adjust, but abandoned the policy after losing 70% of tipped staff in 10 months.
“They became more and more disgruntled, and we started to experience turnover…We were spending a lot of time and energy hiring and training, and rehiring and training.”
New York’s Gabe Stulman reversed his no-tipping policy at restaurant Fedora, claiming the raise in prices caused his customers to spend less, and he would have had to raise prices or cut wages to continue:
“a gratuity free system does not work for our business at this time.”
Brooklyn restaurant owner Andrew Tarlow ended his no-tipping experiment after losing most of his long-term staff, informing his remaining employees in an email:
“Ultimately, we ended up serving an ideal at the expense of taking care of you, our staff, which is a trade-off I didn’t fully anticipate and am unwilling to continue to make.”
John Paluska, owner of the Bay Area’s Comal Mexican restaurants, used the service charge strategy while switching his traditionally-tipped staff to a flat minimum wage. Yet he ended the policy, saying:
“…the no-tipping model was no longer viable”
“…we ultimately concluded that a service charge for counter service doesn’t work.”
Zuni Cafe, a San Francisco restaurant, also eliminated tipping and introduced a service fee instead. Employees explained their shock and concern to the media:
“[Without tips] I couldn’t make the ends meet. It would be going into debt working for them again.”
Another server estimated earning the flat minimum wage with no tips would result in a $30,000 pay cut for the year.
Tipped employees have led the resistance against One Fair Wage’s push to end the tip credit and tipping altogether. Successful movements to save the tip credit and stop OFW’s policies have been launched by servers and bartenders across the country, including in Maine, New York, Virginia, New Mexico, and the District of Columbia. Tipped employees themselves support the tip credit as a lucrative and sustainable model:
“It has given me the…earning potential to support my daughter as a single mom in a very expensive and gentrifying city. I would absolutely without hesitation prefer to work for the lower base minimum wage plus tips.” – Valerie Graham, Jack Rose Dining Saloon, Washington, D.C.
“If tipping went away in the restaurant industry, you would see a lot of people with a lot of good-paying, middle-class jobs becoming low-paid workers.” – Jennifer Schellenberg, Northbound Smokehouse And Brew Pub, Minneapolis St. Paul, Minnesota
“Anybody that thinks that they’re helping us by taking away the opportunity to make tips is gonna hurt a lot of people. Because we depend on our tips. I don’t want $15 an hour, I can make more than that.” – Mary Ann Lambert, The 99 Restaurants, Plymouth, Massachusetts