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Oregon restaurants grapple with a changing industry

STORY BY MARGARETT WATERBURY
PHOTOS BY NOLAN CALISCH AND KATIE UNGER FINK

You’re out to celebrate a special occasion—a birthday, perhaps, or an anniversary. After dinner, the bill arrives. Through the glow of food and wine, you squint at the empty tip line on the receipt, conjuring up those familiar mental calculations. “OK…so ten percent of $150 is $15, times two, that’s $30, let’s see…”

Tipping is a distinctly American practice, and one that feels so ingrained in everyday life that it’s hard to imagine dining out without it. But that’s exactly what Oregon’s restaurant industry is contemplating right now. A confluence of legislative changes mean tipping is on the chopping block, and the way we pay for food outside the house may be about to change dramatically.

How Do Restaurant Workers Get Paid?
Why do we tip at restaurants, and not, say, the stores where we buy pants, or shoes, or new tires? To understand, we need a clear sense of how different restaurant workers get paid.

In most restaurants, servers earn minimum wage, and so do other back-of-house staff, like dishwashers. Cooks usually earn a little more than minimum wage, and higher-ranking back-of-house staff like sous chefs and chefs earn an annual salary, although they usually work a schedule that would crush an 8–5 desk monkey.

However, if anybody at a restaurant gets benefits such as health insurance (not a given), it’s the back-of-house staff. Servers rarely work enough hours to qualify for benefits, and their schedules change all the time, making it very hard to estimate their income from month to month. In recognition of that fact, they earn tips, bringing their effective hourly rate up to anywhere from $25 to $70 or more, depending on the restaurant. Until recently, most restaurants required that servers share some portion of those tips with back-of-house workers in an effort to reduce that huge hourly rate differential.

What’s Going On?
There are three recent developments that have brought employee compensation to the forefront of Oregon restaurant owners’ minds: statewide minimum wage increases, federal changes to overtime laws, and the loss of tip pooling as a viable strategy to boost back-of-house earnings.

Each change is a big deal; all at once, it’s a landslide, forcing the food-service industry to grapple with entrenched pay inequalities and employer-centric staffing practices that are fundamental to the way restaurants have done business in America for generations. “In a way, I think it’s good that it’s happening all at once,” says Ben Meyer, operations manager at Old Salt and Grain & Gristle. “I think all these changes are essential, and this way, it will affect everyone. But it’s rough.”

Minimum Wages Increase
First, Oregon’s minimum wage is increasing. Our current state minimum wage is $9.75. This summer, a new wage law went into effect that outlines a phased increase in minimum wage. Each July, the minimum wage will increase; by 2022, the standard Oregon minimum wage will be $13.50; Portland’s minimum wage will be $14.50; and rural Oregon’s minimum wage will be $12.50.

That increase is poised to have a major impact on the Oregon restaurant industry, and on our experience as diners. “It’s one of the biggest grenades you can possibly imagine,” says Scott Dolich, owner of Park Kitchen. “For every restaurant on the planet, your labor cost is the biggest single item on the P&L. So imagine what would happen if you increased that cost by 30%. Can you raise your prices that much? I don’t know.”

Despite a high minimum wage, Oregon is one of the nation’s only states that doesn’t permit employers to pay their employees less than minimum wage and allow tips to make up the difference, a practice known as a “tip credit.” And it’s true – paying servers $2.50 or $3 an hour seems barbaric, like a return to the 1950s. Yet even now, wage inequality within restaurants creates a dynamic that can foster resentment between cooks and servers and has exacerbated a growing cook shortage.

As the landscape changes, reviving an Oregon tip credit has gained an unlikely advocate: Paul Paz, a career server, author, and founder of WaitersWorld, a consulting and advocacy firm on a mission to “elevate the status of waiters in America to a professional career level, a career of choice offering unlimited opportunity.”

While Paul has historically been against tip credits, his views are evolving. “I used to think, ‘If the back of house needs more income, then they can change careers.’ But I’m coming to a realization: the income inequality that exists in our industry is ridiculous. Without the back of house, I’m just a dancing clown up front.”

“Given the economic dynamics right now, I think a tip credit is appropriate,” he continues. “If I lose $3 to $4 an hour in income because of a tip credit, how hard is it for me to make that up in an hour? If I’m a salesperson, I can make that up in one table.”

It’s a strategy that holds some appeal, especially for workers motivated by the “unlimited opportunity” that tipped income can represent. But it may not work in some contexts, and the likelihood of a progressive legislature passing a tip credit law appears remote.

“It’s one of those things that makes a lot of sense in some circumstances, but not in others,” says Andy Fortgang, co-owner of Le Pigeon. “In fine dining, it makes perfect sense — tipped employees might be making three or four times more from tips than their hourly rate. But for every fine-dining restaurant, there’s a diner in a rural area, or a coffee shop, or someplace with unscrupulous managers and owners. How do you legislate between different types of restaurants?”

Salaries
For some, the minimum wage increase isn’t the primary concern – it’s changes to overtime rules for salaried employees.

New federal legislation now requires that any salaried employee making less than $47,776 annually must be paid overtime rates for any hours worked beyond 40 a week. The values behind the law are sound: salaried employees making middle-class wages should be paid for overtime, just like hourly workers. But hiring back-of-house staff on a modest annual salary and then expecting them to work 60–80 hours a week has been standard practice in the American restaurant industry.

“Restaurants have relied on salaries for so long,” says Ben. “At Old Salt, most of our kitchen staff make an elevated hourly wage. But we still had a few salaried employees, and the impending salary adjustments caused salaries to literally double overnight. So now we’re eliminating salaries for every employee, and we’re trying to get all employees down to 40 hours a week.”

Out of the Tip Pool
Finally, the Ninth Circuit Court of Appeals ruled in 2016 that employers cannot require tipped FOH employees to share their tips with BOH employees. Previously, “tip pooling” – the practice of requiring FOH employees to contribute a portion of their tips to a pool that is distributed to BOH staff, usually according to a point system based on staff roles and the number of hours worked – was commonplace in Oregon restaurants and served as a method of redirecting tip revenue towards BOH employees.

“Tip pooling was the lifeblood of 99% of restaurants,” says Scott. “It was a good way to even the pay between cooks and servers. There’s always been a disparity, and it’s driven a wedge between the front and back of house. Servers come in at 5, work until 8:30 or 9, and walk away with $250. Cooks are working 8, 10, even 14 hours a day and making $10 to $15 an hour. The tip pool was a way to try to make the pay more even.”

Now that option is off the table, preventing shady owners from skimming off the tip pool, but underscoring the wage inequalities between kitchen workers and servers. It’s definitely a trade-off,” says Ben. “It’s something I’ve wrestled with my whole life. When I have a young cook despondent that FOH is making $55 and he’s making $15, I remind him he’s guaranteed 40 hours of work a week, plus overtime. That server is lucky to get five, five-hour shifts, and they probably don’t have health insurance.”

So Now What?
Not only are employers facing an increase in base wages virtually across the board, they’re also now precluded from using tip pooling to help equalize dramatically different wage scales between the front and back of house. And, employers will now have to pay for all those standard overtime hours cooks put in before and after hours – or cut hours and hire more cooks, an increasingly difficult proposition as good cooks become harder to find.

The new landscape has ushered in a period of experimentation in Portland’s restaurant community, pushing many owners to institute new compensation structures that eliminate tipping, soften the line between front of house and back of house, and overturn many of the most central tenants of the American restaurant industry. It’s also changing customer experiences, and some say for the better.

At Le Pigeon, Andy was inspired by dining experiences in Europe, where tipping plays a minimal role in dining out. “When I was visiting France, as a diner, I liked not leaving a tip,” he says. So Le Pigeon eliminated tips entirely in June 2016, swapping in higher hourly rates for servers and a raise for the kitchen. Andy says the strategy improves the dining experience – no more late-night post-meal calculations.

Park Kitchen has eliminated the cook/server divide altogether, creating a model they call “One House.” All employees are cross-trained so they can work in almost every station in the restaurant. Scott was surprised by how excited his employees were to learn some new skills, especially bartending, and says career cooks quickly developed more respect for the difficulties of serving customers directly.

Farm Spirit, on the other hand, never had tipping to begin with, because the restaurant was created to eliminate the need for servers altogether. Instead, cooks serve patrons directly. “Why is servers’ labor more valuable than cooks’?” asks chef-owner Aaron Adams. “I think the future of restaurants is small restaurants that are more navigable without servers, except for the very, very highest end.” Aaron laughs. “Really, I want every place to be a diner.”

As restaurants face major changes to their business models, owners are getting creative – they have to. But eliminating tipping or restructuring compensation is just one way to respond to these changes — and not necessarily one that will work for every restaurant.

“Owners will find different ways of dealing with it,” says Scott. “Decreasing staff, finding efficiencies, using tablets instead of servers, changing models in general. I don’t know exactly how it will turn out – nobody does.”

For diners, that means change is afoot, and we have an unparalleled opportunity to put our money where our values are. Restaurants willing to grapple honestly with income inequality and structural challenges within the food service industry need—and deserve—our support, especially as they navigate the early days of a new legal reality.

Restaurants across Portland are grappling with a future in which tips might play a smaller role. Here are some of the strategies innovative restaurants are testing to balance their bottom lines while taking care of their employees:

Park Kitchen
In the summer of 2016, Park Kitchen instituted a new “One House” model that all but eliminates the line between cooks and servers. Instead, employees rotate to a new position (cook, server, bartender) every 30 days — and each position pays the same hourly rate. Owner Scott Dolich says the change has been overwhelmingly positive. “There is so much more attention paid to food and service, because nobody is worried about the money. All that back-end disparity and resentment of unequal pay is gone. That has been fantastic — it has changed our culture.”

Le Pigeon
Le Pigeon eliminated tipping in the early summer of 2016, but retained traditional job descriptions for cooks and servers. Kitchen staff got a raise, and servers got a higher hourly wage as well as a revenue share of the night’s total sales. When asked how it’s going, co-owner Andy Fortgang smiles: “It’s kind of a snooze. It’s going just fine: cooks are happier, guests don’t seem to mind, business is consistent, and we haven’t had any staff leave.” 

Farm Spirit
Farm Spirit has never accepted gratuities. Instead, they sell reservation tickets online and include an 18% service charge. There are no servers at Farm Spirit. Guests sit at a bar, and the same people who cook each dish, serve it. “At my old restaurant, I was really disenchanted with how the front-of-house staff related to the back,” says chef-owner Aaron Adams. “Why should servers get $30 an hour and cooks get $12? That’s why I created this model, without traditional positions.”

Old Salt
Right now, Old Salt is keeping the tip model but reshuffling its kitchen operations to get all cooks down to 40 hours a week. Since its launch 8 years ago, Old Salt has offered health insurance, 401(k)s, and flexible spending accounts to all employees working 30 hours a week or more. “As long as restaurants have been operating in America, we’ve been undercharging for what we do,” says Ben Meyer, operations manager. “After years of fighting to offer the cheapest possible food, we’ve got to educate the public about the true mechanics of restaurants.”

Margarett Waterbury is a food, drink, and travel writer living in Portland, Oregon. She is the managing editor of Edible Portland.

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