Tipping has little to do with Compensation

A Restaurant owners insight into how eliminating Tipping might be harder than expected.

As we continue to expand our No Tipping series, today we have for you some insightful thougths from a Vancouver Restaurant owner. His views and perspective on tipping are naturally a bit more pragmatic than theoretical. Enjoy!

What are your thoughts on the article?

The idea of a ‘living wage for everyone’ has been put forth quite a bit lately. I think the reality of the situation is that although the system may indeed be broken, it is so entrenched in the fabric of restaurant culture that a full shift not only in thinking but also in the bottom line needs to happen before tipping can be eliminated.

As a restaurant owner does tipping prevent you from compensating your employees the way you’d like?

Tipping has little to do with compensation. What truly prevents me from rewarding employees in the form of higher wages is something called ‘source deductions’ which are paid to the government for every hour an employee works. The higher the wage, the higher the tax. In my case, tipping actually allows me to reward employees monetarily in a way I simply would not be able to afford if a fully taxable ‘service charge’ were implemented. The service charge becomes income for the business which leads to higher taxes being paid by both the employer and employee. Although there is an appearance of a ‘living wage’ in reality most of the income gained ends up being paid back to the government in the form of taxes.

Has the disparity from what a FOH staffer makes and your BOH staffer makes been a problem in hiring/maintaining staff?

With the general shortage of kitchen workers that is plaguing our industry currently, the wage paid to kitchen employees actually has drawn them very close to what a FOH staffer makes. The difference is that the higher wage paid to the BOH is fully taxable and so they end up giving back a much larger sum to taxes. The grey area that tipping provides allows FOH staff to use more of the $$ earned rather than losing it all to the government.

Does your restaurant participate in a tip pool? If so, has this helped alleviate the disparity?

We do use a tip pool system. I have found that it fosters a stronger team environment and lessens the divide that can form between the FOH and BOH staff.

Do you believe the system needs fixing? If so, what would you do?

I think that an amended system around tipping can be implemented but in a business with as thin a profit margin as restaurants making it more difficult to make $$ for small business owners should be a priority. Obviously I am biased in my view but restaurants are one of the largest employers of low income people (14 million people work in restaurants in the USA) and most are small businesses owned by independent entrepreneurs. If the goal is to create more tax dollars paid then it should fall on the government to implement programs and incentives to help foster change. So many food related industries are eligible for government subsidies and it would greatly aid restaurant owners to pay ‘living wages’ if there was a way to do so without bankrupting themselves in the process.

Ron Oliver is co-owner of Mamie Taylor’s — a modern American restaurant located in Vancouver, Canada. It’s excellent. Do check them out. http://mamietaylors.ca
We’d like to thank him for his comments and insight. His views on subsidies for restaurants are definitely on point. If you have any thoughts you’d like to share, please do so.