Hey, restaurant owners, managers, leaders, and future restaurant owners,
I have a very controversial and very interesting topic
that I want to share with you today. It's about adding service fees
to your checks. Should you add a service fee to cover
increasing labor and cost of goods sold right now
or not? Coming up right now.
Hey everybody, Ryan Gromfin here – author, speaker, chef, restaurateur,
founder of The Restaurant Boss, as well as Click Bacon and Scalemyrestaurant.com.
I am very excited to talk to you about this very
controversial topic,so let's get started here.
A restaurant in Durham, North Carolina was forced to add a
20% living wage fee to their guest check
because they were called out as not being
certified by an organization that calls themselves the Durham
living wage project.
In part two of this video, I will address my stance and my
opinion on this matter,
but for part one right now I just want to share some background and some facts with you
and I want to get your opinion before I interject my opinion.
So for years now, this has been a heavily contested topic with
one group of people stating that workers and especially restaurant
workers are not being paid a livable wage.
The other group states that the government should not dictate what they pay employees
and let supply and demand work it out naturally.
Currently, federal minimum wage is 7.25 an hour or
about fifteen thousand dollars a year.
This wage puts a family of two or more well below the poverty level.
Seattle was the first to announce their efforts to raise minimum wage to 15 an hour,
with many big cities and states following suit.
The list is constantly changing, but last I checked a few days ago,
7 states had a 15 an hour minimum
wage plan and they're somewhere in the ramp-up phase of that,
their plans will take full effect at full 15 an hour somewhere between
2023 and 2025.
However, many cities are already there.
Most of these cities are in California, New York, Illinois, you know Chicago,
the big cities, but like Los Angeles San Francisco, and New York,
they're already at 15 an hour and you'd be hard-pressed
to find restaurant employees who would even work
for 15 an hour in those cities.
To make this issue more complex, some states allow for tip credit,
meaning that a tipped employee can make much less than minimum wage hourly.
Currently, the tip credit federal minimum is 213 an hour,
as long as their tips plus their wage exceed
the minimum wage requirement.
Some states have a higher tip credit wage than that
and other states just don't allow tip credit at all.
In certain states, you have to pay the full minimum wage
and then still allow them to take their tips.
To add even more complexity,
there are too many laws to understand and even find anyone who
actually understands them,trust me I have tried
related to tip policies, but basically here's the best I can do,
I'm not an attorney, do not use this advice, but here's
what I teach clients and here's what we believe to be true about tips.
Tips are owned by the person who receives it,
they cannot be forced to share it unless it is in a mandatory tip pool,
which well tip pools are legal,
brings up another issue about who can share in a tip pool.
We know for certain that owners and managers cannot,
but what about back of the house?
So legally the answer is assumed to be
yes, back of the house can share in a tip pool,
but this often angers front of the house employees
who are already angry about a tip pool, to begin with.
Taking the argument that they earned the tip, they should keep it,
but the argument can also be made that without the owners providing the job,
the manager is taking care of the admin stuff that keeps the restaurant alive,
and the back of the house preparing the food,
the front of the house would have nowhere to work and nothing to serve.
You can see how this gets complicated.
The issue gets even more complex, but let's just stop here for now.
Let's return back to this restaurant in Durham, North Carolina.
So when a restaurant named Pizzeria Toro in Durham, North Carolina
was not given their stamp by the Durham fair wage project,
the owner responded with a 20% fee
that he then takes the cash collected from that the money collected from that
and can distribute it however he wants.
This is allowed because it is a required fee and not a tip.
We've put a picture of the receipt up here either here or here or here,
so you can read it and read the language he uses exactly,
but basically, he's using this additional revenue to pay his employees
a higher wage.
This is different than a message on a bill that says parties of six
will have an 18 or a 20 gratuity added.
That is technically understood to be illegal,
but it's never really contested because it's assumed to be a tip
and it allows the tip employee to do whatever they want with it.
So for now, just keep in mind that a fee is very different than a tip,
and parties of six or more is not a fee, it's still a tip.
Again, let's not try to understand it, let's just hope that they get
this simplified one day,
but let's keep moving forward here.
The news company that reported on Pizzeria Toro’s adding of this fee
uh spoke to a few employees and shows one that stated
it's a slight pay cut for him,
but it's more consistent so he's okay with it and it's the general belief
that the other employees are okay with it too.
However, my research since reading this and asking
employees in other restaurants, if they would support this was very mixed,
mostly front of the house saying no way, and back of the house saying yes.
For obvious reasons, front of the house wants to control their tips.
They believe that if they're good,
do a good job, and give great service, they'll get more tips. And if someone is bad
that'll work itself out and they don't want to share their tips with them.
The back of the house loves the idea of higher wages
since they're not tipped currently.
So a fee like this is great for them.
Confusion sets in, what are your thoughts? I want to know, but we're not done yet.
Guests that were interviewed for the news clip
also stated that they want to support his restaurant,
they want to support him because he's making an effort to pay a livable wage,
and that's understandable except for the fact that when I posted this on
my Facebook page, the response was very different.
And when I spoke to people,
friends of mine who are not in the restaurant business, who are just
restaurant consumers
didn't like the idea very much of being
forced to pay a 20% fee.
They also stated that if the service is good,
they will tip and if the service is good they will tip well beyond 20%,
not sure if that's always true but some people say it is true and I know some people do,
but they also said that if the service isn't good,
they don't want a tip or they want a tip less.
They want to decide that.
Basically, they don't want to eat at a restaurant that has a forced fee,
so why didn't the owner of Pizzeria Toro just raise
his prices by 20%
and why isn't he certified by the Durham fair wage project?
Well, let's look at the Durham fair wage project and look at their rules.
So again, we're going to put that web webpage up for you
and put the link and you can go look at it yourself, but let me read quickly.
Thank you for your interest in becoming a Durham living wage employer.
The rate for certification is 15 per hour or 13.50 with health insurance benefits.
The Durham living wage rate is tied to the livable rate
of Durham County and the city of Durham,
which are based on a modified version of the universal
living wage methodology.
Durham living wage project certification
under the current rate will last until June, 30th 2021,
so at the time of reading this on July 7th,
or of me filming this, this is just a couple of days old but still pretty current,
as long as an employer maintains the current living wage throughout that time.
For tipped employees when averaged out,
wages plus tips must equal at least 15 or 13.50 an hour.
Independent contractors who are self-employed and receive a 10.99
must be paid at least two dollars an hour more than the current living wage rate or at least 17 per hour.
There is more if you're interested in reading on the site,
but let's return back. So the owner of Pizzeria Toro said,
he is not certified as a living wage business by the project group
because the living wage is not paid 100%
by the employer, but it is paid with
fees collected which they consider a gratuity
from the customers. As you can see, the confusion continues.
Now it is important to keep in mind that Durham, North Carolina has 226
restaurants listed on open table which if I had to guess,
at least half if not way more than half of restaurants are not listed on open table.
I wasn't able to get definitive answers, at least I didn't try hard enough to get a
pure black and white 100% answer of
how many restaurants and foodservice and food beverage businesses are in Durham,
but I'd have to guess a thousand,
500, even if it's just the 226 listed on open table,
only 18 of that number, whatever that number is
are listed as certified by the
fair wage employee project.
What are your thoughts on that? I will let you insert your opinion here as my opinion is coming
in the next video, but we're still not done yet.
We still haven't figured out why he didn't just
raise prices by 210%, by 20%, sorry.
So he says he considered it but felt this was a more transparent method.
He also goes on to state that so guests are not shocked by this fee,
he tells them they're not expected to tip anything above
the extra fee. So in reality,
this isn't really a fee, it's a price increase,
and while I am very tempted to interject my opinion now,
I will wait for next week,
but before I go let me remind you
when restaurants in Seattle tried increasing their prices six to seven years
ago when the minimum wage conversation started,
every single restaurant that I am aware of
that raised their prices was forced to lower their prices
and reinstate their normal tipping processes.
Guests were just not ready to pay 20% more.
A burger that was fifteen dollars would now be eighteen dollars
with that 20% increase.
And let's be real people price shop.
So they would ask themselves the questions of why is one restaurant
so expensive while another is so much less?
No different than the airlines.
They took everything away they want their prices to be as cheap as possible
so when you shop online and you buy your airline price,
you're only seeing the price but not all the other fees.
And so the reality is, people price shop.
They stated that they will tip when they receive great service,
but if they don't get great service, they don't want to tip,
they don't want to pay the higher prices, they don't want to be
forced to pay the higher prices.
Very similar argument then to increase prices as we are still facing now.
So I’ve presented you with all the information,
I will present you with my thoughts and my opinion
of all of this and what you can do as a restaurant owner, operator
going forward, how you can handle the labor increases,
the challenges of finding labor, the cost of goods sold
increases that we're all facing now, but I really want to hear from you,
what are your thoughts, what are your opinions?
Please comment below and remember,
systems create freedom, freedom creates value, and value creates scale.
I love every single one of you crazy restaurant owners
and I look forward to bringing you another great video
just like this next week. Have an absolutely amazing day, bye-bye.
Want to improve your skills as a manager and make more money.
Did you get handed the manager job and weren't given the support you need?
Are you nervous about applying for a restaurant manager position?
Managing restaurants, bars, and kitchens is not easy.
I know, I have been there.
I want to help.
The difference between where you are now and where you want to be,
there's a plan and some new tools.
That is why I created the restaurant manager certification.
It's a boot camp for aspiring restaurant leaders
designed to simplify your path to the top.
Learn more at therestaurantboss.com/manager.
I hope you enjoyed this week's training video.
If you haven't subscribed to our channel yet,
would you go ahead and smash the like button right up there
so you can get notified every week when we release a new
free training video.
I've also gone ahead and put a couple of videos for you here and here
that I think you're going to enjoy.
Remember, systems create freedom,
freedom creates value, and value creates scale.
Manage systems, develop people, and be awesome.