One restaurant in Lynchburg has thrown out the usual tip system in favor of paying all servers a living wage.
While uncommon in the Lynchburg area, it’s one way restaurants around the country are attempting to find a new way to pay employees as the COVID-19 pandemic forever changes dine-in and carry-out habits. While the majority of restaurants here continue to practice the old-fashioned system — typically paying servers a $2.13 hourly base wage and letting them take home what they make in tips — at least two local eateries are rethinking that practice.
Alex Richardson, owner and chef at RA Bistro in downtown Lynchburg, said one of the reasons he made the change in October was because of the disparity of wages in the restaurant industry.
“If COVID did not happen, there’s certain things within the industry already that have already been challenging in regards to wages, such as how people are paid and what they’re paid,” he said. “What COVID did was put a spotlight on this immediately.”
There was a tremendous amount of effort that went into making this change, and Richardson said the system might not work for every restaurant, but he thinks it will become the new norm.
“I’m not saying that this is the exact answer,” he said. “I think it’s a mixture, a blend, and is a first step to what I think is going to happen to the industry as a whole.”
According to the National Restaurant Association, the tip credit requires every employee earn at least the federal minimum wage, or higher state or local minimum wage if it exceeds the federal minimum wage.
The tip credit is the practice that if the combination of the base wage and earned tips doesn’t total the required minimum wage, the employer must pay the difference to ensure the employee is making the minimum wage. Tipped restaurant employees make on average $19 to $25 an hour.
Because of this, recent attempts to eliminate the tip credit in several states or cities have been defeated after tipped workers spoke out about why they prefer the tip credit. No state has eliminated the tip credit in more than a decade.
According to the restaurant association, restaurants run on very slim profit margins — on average 3% to 5% pre-tax — and payroll generally is the highest cost center — more than one-third of their overall costs. If the tip credit is eliminated, many restaurants would likely have to cut hours and raise prices to cover the higher wages. Tipped wages help restaurants with slim margins recruit and retain top talent.
Richardson looked at tip ratios over 11 years and found there was an average of between 20% and 26% left for tips.
So now RA adds a 20% dine-in surcharge to the bill, which goes straight to staff members’ wages. Guests are not expected to tip, but they still can choose to do so.
“Alex is taking an innovative approach that helps to take care of his employees and maintain steadiness in an industry that has felt uneven and potentially devastating impacts from the COVID-19 pandemic,” Anna Bentson, assistant director of Economic Development & Tourism for the city of Lynchburg, told The News & Advance. “We are grateful for his experience in the industry and his investments in Lynchburg — this is just one way that he is helping his employees, his community and his guests feel a sense of security in uncertain times.”
Gerald Prante, professor of economics at University of Lynchburg, said, based on studies, there are a couple of reasons for the tipping system.
One is that it’s become a “golden rule” of sorts. People vacationing in Bermuda will tip their server even though they know they likely will never see them again.
Studies also find tipping is correlated with service quality, giving servers the incentive to do a good job.
“They’re getting that feedback in real time,” he said. “Whereas now it’s going to be based on presumably how many complaints or praises they get from customers or through monitoring of the employer by the boss.”
He said there are downsides to tipping, including possible biases from customers and unfairness of tipping higher based on race, gender or attractiveness, but Prante said taking away tips could be throwing the baby out with the bathwater in some respects.
“There’s not a perfect system,” he said. “But is the cure worse than the disease?”
Blake Radford, a manager at RA Bistro, joined the team about a month after the new system began and said it was one of the reasons he was attracted to working there.
He said the new system is beneficial to servers in that they can make an income that doesn’t rely on tips, especially during COVID-19, when less tip money was coming in.
“When we can only have half of our capacity and all across the board people are hurting from last year, there’s a guarantee of wages there when your typical server was making tips that was with a full restaurant with full hours and people actually having the lucrative income to actually go out to eat almost every night or every other night or how often people would do it,” he said. “But with the response to COVID, you know, everyone was going out less.”
The disadvantage, he said, can be toward experienced servers and bartenders who have the ability to make more through a tip system in a pre- or post-pandemic setting.
“The cons is that there were a lot of employees who I would consider ‘seasoned’ who took negatively to the change, and so they ended up leaving RA or trying to find a job elsewhere on the grounds that they have the ability to make more,” Radford said. “But who knows when that’s going to be, when it’ll go back to any sense of normal with full capacity.”
Radford said those who still work at the restaurant are happy with the system and know when they come into work each day they will leave with a satisfying amount.
Meanwhile, Charley’s Restaurant and Catering at 707 Graves Mill Road still is using traditional tips but has started a “tip pooling” practice, which combines all tips to distribute to staff working directly with customers.
“It doesn’t matter if somebody got $50 on a table inside or $10 tip on a to-go order, doesn’t matter who was doing it. It’s all put into a pool. And at the end of the night, for everybody that worked, it’s the same amount,” said Rob Pearson, owner of Charley’s Restaurant.
This was necessary because operations at the restaurant immediately changed because of COVID-19 restrictions. While the restaurant’s business used to be about 10% takeout, now it’s between 30% and 40%.
“Before, typically the bartender would take a to-go order during the week but we don’t have a bartender now because we can’t have seats at the bar,” he said. “Then on weekends, we had a designated takeout person.”
Now, any employee will answer those calls.
“So the person with a part of 20 people has nothing to do with five takeout orders but they’re sharing that money,” he said. Everybody works together. It’s a team effort.”
Pre-pandemic, tips on to-go orders were about 20%, he said, but for the past year they’ve increased to 30% or even 40% because customers were sympathetic toward restaurant workers.
This is a style that works for Pearson now, but he said restaurants constantly have to be ready to evolve with the ever-changing situation.
“The only thing we learned from COVID-19 is that something that made sense one week or month may not make sense the next week or month and that you’ve got to be flexible and it roll with it because they’re all unknowns. We just have to be flexible in running our business,” he said.