Finding the right compensation model for our team, our guests and our company.
The hospitality industry is evolving in Washington and Oregon, as it is across the country. With increasing wages and other legislation related to tip-pooling practices and predictive scheduling, even those of us with years of experience in the industry are having trouble keeping up with all the new rules and terms. When the Seattle City Council voted for a $15 minimum wage in 2015, we began looking at a variety of different ways to address the changing labor market. When the 9th Circuit Court eliminated Tip Pooling in February 2016 and the Seattle City Council enacted new scheduling legislation in 2016, we knew we needed to make changes to compete in a tight labor market. We weighed the pros and cons and developed our service charge model so that our team will thrive, our guests will continue to receive an outstanding experience and our company is well positioned for the future. Fire & Vine Hospitality is a team of more than 500 professionals who have made the hospitality industry their career and we are committed to compensating all employees, both front and back of the house, as the professionals they are.
We hope the definitions and infographic below are helpful in defining some of the wording and explaining the different compensation models in the hospitality industry.
Glossary of Terms:
Service Charge: A service charge is a set percentage added to every guest check. The total amount of the service charge is the property of the restaurant and the service team is paid an hourly wage and a commission.
Gratuity: A gratuity or tip is money paid, over and above payment due for service, as to a waiter or other person in service. Tips are usually distributed between the server, bar staff and support staff including bussers and hostesses.
Tip-Pooling: A valid tip pooling practice involves the collection of all (or a portion of all) the tips collected from directly tipped staff to be put into one large “pool.” From here, tips are redistributed among a larger group of employees. In theory, tip pooling ensures that all staff members are fairly compensated for their work, especially when there are multiple services being rendered and single points of payment. Only usual and customarily tipped employees can be part of the pool. Employees can’t be required to share their tips with employees who don’t usually receive their own tips, like dishwashers or cooks.
Tip Credit: Under federal law and in 43 states, employers may pay tipped employees less than the minimum wage, as long as employees receive enough in tips to make up the difference. This is called a “tip credit.” The credit itself is the amount the employer doesn’t have to pay, so the applicable minimum wage (federal or state) less the tip credit is the least the employer can pay you per hour. If you don’t earn enough in tips during a given shift to bring your total compensation up to at least the applicable minimum wage, your employer has to pay the difference. Since 1992, Washington and Oregon have not allowed the tip credit.
Frequently Asked Questions:
In the traditional tipping model, do servers keep all their tips?
No, there has always been a practice of tip pooling where the tip amount is distributed between the server, bar staff and support staff including bussers and hostesses.
How are employees compensated in a service charge model?
Each member of the service team is paid an hourly wage and a commission. Some restaurants, including Fire & Vine Hospitality restaurants, include the ability for guests to leave an additional gratuity which goes directly to the server.
Are service charges considered wages, tips, or a benefit for employees?
A service charge is the property of the restaurant and the restaurant then pays hourly rates, commissions and revenue share to employees which are subject to wage-related taxes, and are reported by the employer to the IRS.
What are the benefits of a service charge model?
Employees: Our team is make up of professionals who have made hospitality their career and they count on doing well here because they have families, they are homeowners, they are active members of their community. The commissioned salesperson model, combined with our policy of allowing guests to leave an additional gratuity for excellent service, means that our team is doing as well or better under this model.
The Company: Our company has been successfully using a service charge model with our Private Dining business for 20 years. Because that business is larger than most other restaurants, we already have extensive experience with this model. It has worked great for our team, our guests and our company. The advantage to this model is that we pay the state minimum wage and then a commission, rather than the city of Seattle’s minimum wage. The delta between the two saves money for our company, while ensuring that our employees continue to do well.
The Government: Because taxes are paid on the service charge, state and local government benefits from increased tax revenue. $15 million gross sales creates $3 million in service charges and $300K goes to Washington State sales tax and $60K goes to B&O taxes.
In the picture below, why don’t the percentages add up to 100%?
Because the restaurant now pays the credit card fees, additional .5% B&O tax and the loss of the FICA tip credit, we actually pay slightly more than the 1% not represented in the graphic.
- Restaurant Hospitality Magazine story about compensation models
- Chad’s thoughts on Seattle scheduling legislation
- El Gaucho Service Charge press release