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Do You Know Where Your Tip Money Is Going?

Restaurants in most states are now permitted to share servers’ gratuities with cooks and other back-of-house employees

tipping laws

It’s a scene that plays out at the end of the night at most restaurants across the country: Servers, tired from a long shift and ready to clock out, must count the cash that’s in their pockets and match it with the sales and tips they earned that day. Once that’s reconciled, they file the money and receipts away, and, depending on the restaurant, might pass a few bucks from their take-home tips to the bartender, food runner, busser, or hostess. This is called “tipping out” in industry parlance, and it’s a fluid and frequent practice of sharing the (tip) wealth. Since 2011, servers have not been allowed to share tips with the cooks or dishwashers behind the kitchen doors. But the Trump administration made a drastic change to that rule earlier this year.

On March 23, the government passed a 2,232-page budget spending bill. Tucked inside, on page 2,205, were hard-won, far-reaching amendments to the Fair Labor Standards Act (FLSA) offering protections for tipped workers. The bill expressly prohibits employers, managers, or supervisors from collecting or retaining tips made by employees — one of the biggest concerns opponents had against the Department of Labor’s recent, and widely hated, proposal.

The new law makes another critical change. It allows tip sharing between tipped and non-tipped employees — for example, between servers and cooks — if a restaurant pays the full minimum wage (does not take a tip credit) to all employees. This is a departure from the older rules, which did not allow such sharing of tips between traditionally tip-earning staff (bartenders, servers) and non-tip-earning staff (cooks, dishwashers).

The change in the law means that restaurant operators in most states — including the seven states that do not have a tip credit (California, Oregon, Washington, Nevada, Minnesota, Montana and Alaska) — are now free to ask servers to tip out the back of the house provided they pay employees at least the full minimum wage for all hours worked. However, in a few states, such as New York and Massachusetts, due to the particularities of state law, it remains illegal to share tips with back of the house even if the restaurant pays the full minimum wage.

First, some good news...

At least in the short term, the change has the potential to level longstanding income inequality between back and front of the house. “This is just huge news for full-service dining,” restaurant owner Benjamin Shahvar told the San Francisco Chronicle. “This is as big as finding out the minimum wage is going up $1 a year for the next five years.”

A number of restaurants in California are already embracing the new rules. Rocco Biale, owner of Rocco’s Ristorante Pizzeria in Walnut Creek, a family-owned, full-service, 350-seat restaurant that’s been around for 19 years, began sharing tips with back of the house nearly immediately after the change in the FLSA.

“The kitchen is not only part of the chain of service, they are the heart of the chain of service,” Biale says. “There is a lot of back-of-house work that is critical to the diner’s experience and there is no logical reason why hard-working kitchen staff should not share in a portion of the customer’s generosity. To not allow them to participate in a tip pool has been a long overdue oversight.”

The change, at least at Rocco’s, has been seamless. The servers continue to tip out the same percentage, but the back of the house now shares in it, in addition to hostesses, bartenders, and barbacks, “chain-of-service employees” who were always in the pool. “We made the change right away and nobody blinked,” Biale says. “Servers don’t notice a difference because they tip out the same amount; it’s just that now the back of house can share in it, too.” This means that everyone in the front gets a little bit less, too. The exact amount that everyone is tipped varies from restaurant to restaurant.

Tanya Holland, chef and owner at Brown Sugar Kitchen in Oakland, plans on sharing tips with the kitchen when she relocates to her new space in downtown Oakland and opens a second restaurant in the San Francisco’s Ferry Terminal Building. “I will absolutely be sharing tips with back of the house in my new restaurants,” she says. Holland has also signed onto RAISE, Restaurant Advancing Industry Standards in Employment, an organization of restaurants committed to professionalizing the industry and raising wages and work conditions. “Kitchen people are so underpaid and we have to equalize it,” she says. “The system is really antiquated and makes women very vulnerable to sexual harassment and coercion, and that has to stop. This change has been a long time coming.”

Biale says the key to harmony is to find the right balance in the tip pool, giving enough to the back of the house without making it punitive to the front. “You have to find that middle ground that satisfies the back and front of house,” he says. “Either a standard percentage of sales going to the kitchen workers, or a percentage of the tips earned by servers and bartenders going to the kitchen workers.”

Reducing income inequality isn’t the only projected benefit to tipping out the back; Biale believes better compensation will also help to mitigate a huge labor shortage in the kitchen. “Restaurants need to better compensate the kitchen because there is a real labor shortage,” he says. “It’s so bad, we are in the fetal position here.”

On the other hand...

While most operators are pleased with the ability to share tips with the back of the house, this isn’t necessarily good news. Giving restaurateurs the power to force tip sharing with back-of-house staff could offset what should be the cost of doing business. Rather than give cooks raises, they can siphon tips off from servers to pad cooks’ existing salaries. It’s a quick fix for an urgent income-equality problem in the hospitality industry. But, over time, it removes some of the pressure to eliminate tipping — a practice Eater has found demeaning and discriminatory — altogether.

Perhaps unsurprisingly, not all servers are keen on the new rules. A server in New York City, who wished to remain anonymous, believes “it’s the restaurant’s job to take care of the back of the house and not the responsibility of the server.” She previously worked at a restaurant in Hawai‘i where tips were not shared with back of the house, but management paid the kitchen staff a higher wage and gave them other benefits, like separate family meal and food to take home. “That worked out really well and we had a nice sense of camaraderie,” she says.

Two servers in San Francisco, who didn’t want their names printed, admitted that it sounded “selfish” to not want to share tips with back-of-house staff. They were accustomed to tipping out their fellow service staff, and noted that except in the case of gratuity-included restaurants — a system pioneered by restaurateur Danny Meyer’s Union Square Hospitality Group — sharing tips with non-tipped workers “seems like giving our money to the owners. It’s like, all of a sudden Chef doesn’t need to give the cooks raises, because we did.”

The current situation:

The issue is bubbling up in New York City with some force. While it remains illegal to tip out the back of the house in New York for now, the change in the FLSA might usher in a new paradigm for the way the city pays its restaurant workers.

The state of New York is now considering eliminating the tip credit, which could then open the door to a change in rules regarding sharing tips with back-of-house workers. Gov. Andrew Cuomo is currently holding hearings on whether to eliminate the tip credit, a proposal that has stirred up virulent opposition, with many restaurateurs contending that this could be the death knell for the industry. “After New York raised its tipped minimum wage by 50 percent at the end of 2015, over 270 restaurants closed statewide,” wrote Michael Saltsman, managing director at the Employment Policies Institute (EPI). “Unless Cuomo wants New York City to go the way of San Francisco — where dining out becomes a privilege for the well-heeled, and high costs crush the mom-and-pop eateries — he’ll send this half-cooked proposal back to the kitchen.”

Beatrice Stein, a restaurant consultant in New York City, says the tip credit is critical to New York restaurant operators. “That tip credit greatly helps a restaurateur to save money in a climate where they are facing insurmountable costs — taxes, and fees for family leave and sick pay and skyrocketing rent and food costs,” she says. “The operating costs are just too high, and if we lose this we will have to put less people on the floor to reduce labor costs. That puts stress on everyone in the restaurant and really affects the guest and the guest experience.”

To offset costs, more than 200 restaurants — from Michelin-starred restaurants like Eleven Madison Park and Cafe Boulud to popular neighborhood ones like Jack’s Wife Freda and St. Anselm — have signed a letter to Mayor Bill de Blasio asking that he support their right to add a surcharge. Currently, it’s illegal in restaurants for New York to add a surcharge to bills, a law intended to protect diners from surprising fees.

Andrew Rigie, executive director of the New York City Hospitality Alliance, opposes the removal of the tip credit. “We can’t look at this in isolation,” he says. “By the end of this year there will have been nine mandated wage increases in the past three years. Coupled with the sky-high price of commercial real estate and the new mandated paid sick leave and health care, you have a perfect storm of price pressures.”

Without citing sources, Rigie believes restaurant workers are also opposed to losing the tip credit. “Servers are doing really well under the current system, and they are concerned that if the tip credit is eliminated, it will hurt their earnings,” he says, pointing out that if their base salary increases, menu prices will need to rise, eventually resulting in fewer diners spending less money when they go out. Rigie also believes that eliminating the tip credit would further increase the disparity in wages between front-of-house and back-of-house workers, who cannot earn tips.

Evidence is conflicted on the true benefits to eliminating the tip credit. Restaurant Opportunities Center United (ROC) research shows that paying full minimum wage does not reduce servers’ tips, and does not reduce overall restaurant sales. However, The Census Bureau released a study that found a decrease in tips associated with a higher minimum wage.

That said, a recent poll by the National Restaurant Association found that a majority of Americans believe the minimum wage should be raised, even if it means they’ll have to pay more for their meals when dining out. Results of the poll, which were presented on a slide deck obtained by The Intercept, indicated that 71 percent of Americans support raising the federal minimum wage to at least $10, “even if it also increases the cost of food and service to customers.”

The change in the law may also reduce sexual harassment in the industry. “When front-of-house and back-of-house workers share in the tip pool, there is less tolerance for sexual harassment,” says Saru Jayaraman, executive director of ROC, who points out that the seven states paying the full minimum wage (and not a tip minimum) have half the rate of sexual harassment compared with the other 43 states which have tipped minimums, according to ROC’s 2014 Glass Floor Study.

Sexual harassment proliferates when some workers experience a lack of power; when female servers earn sub-minimum wage, they have to do whatever it takes to earn tips, and that includes tolerating harassment by kitchen staff. “When you bring back of house into that tip pool, the power and balance shifts, because the waitress gets a full wage and the kitchen is invested because they can share in that tip pool,” says Jayaraman. “Everyone along the line of service becomes a team and that changes the power dynamic.”

A recent report supports ROC’s research. In interviews conducted by the New York Times, more than 60 servers and bartenders shared stories of crude comments, propositions, groping, and even stalking from customers. “They work in diners, chain restaurants and high-end dining establishments, and they reported hourly take home pay ranging from $8 to more than $40,” the Times reported, linking sexual harassment to tipping. “Working for tips means that each shift comes with questions that do not apply to millions of other workers around the country: How much money will I make, and how much will I tolerate to make it?”

But the EPI conducted a review of ROC’s methodology and Equal Employment Opportunity Commission data collected during the time period studied by ROC, and found discrepancies. They concluded that there was almost no difference in the percentage of sexual harassment reported from restaurants in the states without the tip credit and those with. They also found that New York State, which does have a tip credit, has a lower rate of restaurant sexual harassment than any of the states without a tip credit. That said, it’s widely known that incidents of sexual harassment are under reported as victims fear retaliation.

Regardless, some New York operators are already convinced of the benefits of tip-sharing. Sara Jenkins, the chef and owner of Porsena restaurant in the East Village, told Eater in December that she would love to see New York adopt regulations permitting operators to tip out the back of the house. “I don’t think it’s fair that waiters take home such significantly huge salaries that the kitchen does not,” she says. “If I could share tips between front and back of house, even if I had to pay full minimum wage, I would do it.”

Camilla Marcus, owner of West-Bourne in Soho, a hospitality-included restaurant that employs its staff from the Door, a nonprofit that serves at-risk youth, agrees. “The back of house has been marginalized for a very long time, and I think the change in the law shows we are moving forward,” she says. “A model that brings teams together is important.”

Update 6/13/18; 9:48 a.m.: This post has been updated to reflect inconsistencies in data about the connection between tips and incidents of sexual harassment.

Andrea Strong, founder of the pioneering food blog the Strong Buzz, has been writing about restaurants and food for the past 18 years.
Editor: Daniela Galarza