“Equity within the whole restaurant”: The problem with the tipped wage

Even though he came up in professional kitchens starting as a line cook, Ron Hsu didn’t internalize the implicit inequity and racism of the tipped wage system until he became a restaurant owner, in 2019. The Atlanta-based chef/owner of award-winning tasting menu restaurant Lazy Betty, along with Asian-Southern Juniper Cafe and the forthcoming chef-driven pizzeria Humble Pie decided instead to institute the federal minimum wage and a service-charge model at his restaurants. 

It’s come with pushback — not just from some customers but from waitstaff reluctant to embrace change or loath to face confrontation with skeptical consumers. But he’s determined to be part of the — oft-maddeningly slow — change in what he sees as a deeply problematic system. 

In his own words, Hsu, who’s a steering committee member at the nonprofit restaurant equity network Raise: High Road Restaurants, lays out the problem with tipped wages, how he’s doing things differently, and how far we still have to go.

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Ron Hsu: The tip credit didn’t really get on my radar until I became a restaurant owner, because you have to immerse yourself in all facets of the business. What caught my attention — mostly in full-service restaurants — was that you’d always find big pay disparities between the front and back of the house, usually with the front of house making more because they’re getting the majority or all of the tips. (If as a restaurant operator you claim a tip credit, that can legally only go to customer-facing employees.) For operators, they get a little more on top by subsidizing their waitstaff’s labor through tips. 

[Lazy Betty is] a tasting menu restaurant, but for most people going there for the first time, they’re going because of the food. If everyone is tipping 15 to 20% on the majority of food sales, why does that all go to the front of the house? I don’t think that’s really fair. 

I’m also a minority; my mother came to America from Taiwan with $20 in her pocket and had to fight for everything. So for me, I want things to be fair. It’s important to have more equity within the whole restaurant. Given the nature of the industry or perhaps institutional reasons, a lot of people in the back of the house are minorities. Why are they making less? Because they’re not as eloquent? That shouldn’t be a reason. 

It’s not just about pay equity between the front and back of the house. The tip credit has roots in slavery* [Editor’s note: see below]. It was a way for slave owners to continue to employ people for basically nothing. 

We’re also the only industry where half of the workforce has to rely on a customer’s goodwill. If something happens out of the staff’s control to make the diner have a bad experience, they still get punished with a lower tip. Whereas if you buy an iPhone for $1,200, everything from the cost of materials and labor to build it, sell it and market it is built into that price. So this guest perception of ‘Why should i have to pay for staff labor?’ — well, you actually do that with everything you buy. It’s all perception. It’s also hard to fight something so prevalent. 

I wanted to implement a service charge, because then it’s mandatory; it’s not up to the goodwill of the customer. And because it’s a fee, the restaurant can choose how to allocate it. 

It’s very tough for restaurants to do this. Overall, those that do a service charge are decreasing their margins. It’s not like something we’re doing to manipulate the wage model or benefit our pockets. Because I’m implementing it as a charge, we have to pay taxes vs anything left by the customer is not taxed. So we get pushback from customers who think we’re being shady. Sure, there may be some operators taking advantage and pocketing it. For the most part, the restaurants doing it are trying to make change, promote equity and abolish very antiquated systems. 

I based the model on what I’d normally tip — 20% — but also knowing that I’m going to take ‘X-percent’ from my waitstaff to level things out for the back of the house, it needs to be higher so they can still make what would be competitive for the restaurant industry. At Lazy Betty, we include the service charge in all our prices. So let’s say you’re paying $15 for a cocktail, 20% of that is already allocated to staff. It’s a little different at Juniper, because it’s a much lower price point. We price everything where we think it’s at and add 20 percent to the end of the bill.  

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Because Lazy Betty is a higher-priced experience, customers are willing to spend more right off the bat so I had less resistance. People almost always tip on top — I would say anywhere from 30 to 50% of people. I think because of Covid they’re even more sympathetic to people in the food and beverage industry. But the culture of servers is that this is such a novel wage model they don’t trust it. After six months of operating, servers were making more, because so many leave an extra tip, and they adopted it. Most of those servers are also veterans of industry, doing this for decades. They know how to communicate with customers, navigate tough conversations and handle guest recovery with introducing new policies. 

It’s been a little tougher at Juniper. The staff is new, not quite as experienced. They’re not comfortable talking about money with customers. I think the mistake has been in how we implemented it; maybe we didn’t do enough to quell the fears of waitstaff. Some of them asked, ‘why do we need to tell customers about the service charge? That means they won’t leave an additional tip.’ It’s not their fault because it’s a novel idea. Most people are willing to accept a service charge because they’re leaving a generous tip anyway. When they don’t get informed — for us, we tell them when we drop off the check, print it on the menu, guest receipt, website, reservation platform — you can ruin their goodwill and they might not come back. 

So how do we change people’s minds? It’s nothing that’s going to be a quick fix; it’s something you have to do one customer, one server at a time. It takes a lot of data and a lot of communication to get buy-in. 

One good thing Covid did is make everyone more aware of how difficult working in restaurants is. You can’t work remotely if you’re cooking or serving food. Because so many restaurants rely on face-to-face interaction to put forth their product, a lot of our customers were like, ‘they’re working during a pandemic. We’re going out as entertainment, they’re working to survive.’ Everyone’s awareness and empathy increased. Pre-Covid, Lazy Betty was probably one of three full-service restaurants in the entire city of Atlanta with the service-charge model. After Covid when restaurants opened back up, I’d say it’s more like one in six now, which is really encouraging.

With Covid also came a lot of social issues that came to light — racial issue in this country and fact that tip credit has roots in slavery. I think everyone’s listening; now it’s about getting the right information to their ears. 

Of course, there’s still a lot of pushback. Not everyone that comes in likes it. 

But it’s gotta start somewhere. Danny Meyer tried implementing it in his restaurants [Union Square Hospitality Group] in New York in 2015, but it didn’t work. I think we’re decades away from truly seeing a different model. It is happening; we just have to do a little at a time and keep chipping away. 

*Tipping in America has its origins in the post-Civil War, when white business owners still keen to steal Black labor replaced wages with tips, nodding to a practice started by European aristocrats to show servants favor. American restaurant corporations shifted the notion of tipping from being a bonus to the sole form of income for Black workers. Eventually, Black porters fought and achieved higher wages with tips on top. But the practice persisted in restaurants, and was even excluded when Franklin Roosevelt signed the nation’s first minimum wage into law in 1938.