In October, the owners of The Wild Goose Meeting House and Good Neighbors Meeting House faced the biggest challenge of their eight years in business, and not just because of pandemic disruption.
Employees picketed The Wild Goose downtown to air grievances about the way tips were being collected and distributed to the staff, among other things.
The restaurants’ tip-sharing policy resulted in some employees making less than the state-mandated minimum wage, the employees said.
Before the issue was resolved, two employees were fired and others chose not to return to their jobs.
On Jan. 1 at Good Neighbors, and in March when The Wild Goose reopened, the businesses shifted to a no-tipping policy, instead raising prices enough to cover costs and above-minimum-wage salaries, co-owner Russ Ware said.
So far, it seems to be working.
“The challenges we received from some of our staff in October really lit a fire under our feet,” Ware said. “I’m really glad we were pressed to do that. If it hadn’t happened, we wouldn’t be where we are now.”
Throughout the state and the nation, restaurants are looking at adopting new models. The pandemic forced them to face many broken aspects, including wage disparity, racial and gender inequality, and job quality issues that made it difficult to find workers who would stay and grow with their employer, said Robert Bogatin, director of Good Business Colorado’s Resilient Restaurants program.
“This has resulted in nothing short of a complete paradigm shift in how we view the workforce and the job quality and the government aspects of food service,” Bogatin said. “Even though it’s ridiculously challenging and so many people are struggling, this is the time that needed to reinvent the model. Everybody’s building new teams.”
Resilient Restaurants is working to help restaurants do just that by adopting new wage and compensation models.
The organization just launched an exclusive payroll and wage calculator at resilientrestaurants.org where restaurant owners and managers can compare their current payroll to models including a full-house service charge, a back-of-house/benefits service charge and a full-house tip pool.
The site also provides a rehire-with-resilience program that offers resources to help restaurants tackle challenges including profitability, sustainability and redevelopment of their workforce into a diverse community of professional and supported employees.
“We’re seeing a lot of mobility toward needing to address the changing workforce,” Bogatin said. “How are we allowing people to advance? Are we training them properly? Is there a career path here?”
While he thinks there will always be a need for temporary, part-time, seasonal food service workers and entry-level positions, those questions have to be addressed if restaurants are to rebuild dynamic new teams.
TIPS VS. SERVICE CHARGE
A shared employee ownership model “is definitely one of the highest tiers that you can get to,” Bogatin said. But around the state, the main models currently are tip pooling and service charges.
“Tip pooling in the front of the house has been more common in the last number of years,” he said. “But now, having a full-house tip pool, where you’re including all of your culinary staff and your hospitality staff in the same pool — that is one of the models that’s definitely being looked at.”
There are various ways to do it, he said. Employers can pay employees the same or different hourly rates; they can distribute shared income according to seniority, job responsibility, time worked or other factors.
“It’s a matter of working with the business on which framework is going to have the best result, and then refine it for your staff and your business,” he said.
Two service charge models “stand out as being equitable and moving the industry in the right direction,” he said.
A back-of-house and benefits service charge of 3 to 8 percent per ticket provides more equitable wages for the kitchen staff and generates money for benefits for the whole team.
“These service fees have been received really well at the places I’ve visited,” Bogatin said. “These models are still having customers tip their servers and bartenders, so they’re still making pretty good money,” he said.
A full-house service charge, also called hospitality included, adds 18 to 20 percent to a ticket that is distributed between the kitchen and front-of-the-house staff.
Although service charges require a bit more cost burden for the employer, “they put more money in employees’ pockets. They increase their job quality and have an affordable, reasonable cost burden,” especially when employee retention rates are considered, Bogatin said.
“The average restaurant with 16 employees is spending $30,000 to 40,000 a year training and hiring employees,” only to see 70 percent of them leave in a relatively short amount of time, he said. “With service charge models and tip pooling models raising the paradigm of the industry, retention rates are going to go a lot higher, and we’re going to save some money.”
CHANGING THE GAME
The payroll and wage calculator is a comprehensive tool that will produce a CPA-audited report which shows what payroll would look like if a restaurant implemented a number of alternative equitable compensation models, Bogatin said.
Owners often are resistant to making these changes in payroll because they think it will mean they have to double their prices.
While it’s true that any change will impact payroll and many other business and financial operations, including personal income tax credits, “there are a lot of people who get caught up in seeing the payroll expense in a very linear way,” he said. “When you look at it from a systemic view and from an operational standpoint, and you look at other things that are affected by changing your wage model, it’s not that bad, and it’s actually really good for your bottom line.”
Bogatin said the tool will help restaurant owners choose the model that makes the most sense for them.
A former restaurant owner and coach, Bogatin said he has obtained funding to offer the tool to 150 businesses for free and will also provide a 30-minute consultation to interpret the results.
Bogatin also is keeping an eye on national legislation being discussed that would change the classification of service charge income.
“That is a game-changer,” he said, because tipped income is taxed and handled differently than service charge income.
“Basically, a business owner has no right to any tipped income; workers have to get all of their tips,” he said. “Service charges are classified by the IRS as business revenue.”
That creates an incentive, embedded into the financial culture of restaurants, to have tipped workers, he said.
“We’re trying to change this to reclassify service charges that are allocated to employees to be synonymous with tip income, because there’s a huge financial benefit for doing so,” he said.
Ware and Wild Goose co-owner Yemi Mobolade shifted their model after a lot of research and soul searching.
“We as restaurants essentially don’t charge enough to pay people what they need to be paid,” Ware said. Doing so has not only permitted them to pay their hourly employees a median wage of $17 an hour, but also to establish paid time off and sick leave for managers.
“We’re on the cusp of that” for hourly workers as well, he said. He hopes to have a health insurance option for all employees in place by the end of the year.
“Customers have been for the most part very positive,” Ware said. While some question why there is no opportunity to tip, “the vast majority are really appreciative.”
Hiring and retaining great employees isn’t just about pay and benefits, though. It’s also about career paths and company culture.
“We have always had people that are on a track for development in our places,” Ware said. “Our emphasis has been trying to shift more toward people that are looking at this more long-term — without eliminating the fact that college students want to come work for 20 hours.”
Since the restaurants have made changes, “the median age and place in life of our staff has definitely elevated,” he said. “We have more people that are married and just a little further along in life. That is happening organically.”
One of the ideas that has been advanced by the pandemic is that quality jobs for food and beverage employees offer career pathways forward, said Lee Wheeler-Berliner, managing director of the Colorado Workforce
“Leaders are ultimately the ones responsible for elevating opportunities for growth, for connection and meaning,” he said.
Housed within the Colorado Department of Labor and Employment, the council is a business-led, public-private coalition that focuses on strategy to ensure that businesses have access to talent and individuals have access to meaningful employment.
One of its initiatives is Lives Empowered, which focuses on upscaling and training frontline workers in the retail, hospitality and food and beverage industries.
“We were granted $1.2 million from Walmart in 2018 to roll out this initiative,” said Bobbie Wolfe, career pathways associate with the council. The grant totaled $4.1 million over three years.
Among other things, Lives Empowered provides online training programs for employees to strengthen essential skills such as customer service and earn an industry-recognized credential. It also allows people to explore career pathways and learn what education and skills are required to advance career goals.
Another initiative, to be rolled out later this month via coworkforcecouncil.org, is a framework for job quality that will help employers structure positions and advancement opportunities.
Part of the objective is to help educational entities design curriculum that is informed by the needs of employers, but the framework also can be used by employers who want to take an active role, Wheeler-Berliner said.
“Oftentimes, people do churn through occupations in the restaurant industry, because no one has had a conversation with them about where they could go, how long that would take and what they would need to learn to get from point A to point B,” he said.
“When companies understand what they could potentially be doing for employees, they can create in-house training options; they can connect with associations that may have training options as well. And then you can start to see benefits for the employees.”