Pandemic opens door to scrapping tipping system, restaurant owners say

Paul Fehribach, owner of Big Jones in Chicago’s Andersonville neighborhood, has wanted to eliminate tipping at his restaurant for years.

He didn’t like having the whims of customers determine how much his waitstaff got paid. Even when tips were generous, it felt wrong that the kitchen staff earned much less in comparison.

But relying on customer tips to subsidize servers’ wages underpins the restaurant business model in the U.S. and is embedded in the cultural fabric. Fehribach worried that customers and employees would balk if his restaurant was among the first in Chicago to abandon that structure.

Then came the pandemic.

With restaurants forced to close their dining rooms, Fehribach had a clean slate. He started paying his tipped workers an hourly wage they could live on, and when dining returned in the summer, the tipping system didn’t.

“It’s wrong, it’s always been wrong,” Fehribach said. “Our workers deserve the security of knowing what they are making when they come to work.”

Big Jones is among a handful of restaurants in Chicago moving away from the longstanding practice of paying some workers less than minimum wage if customer tips make up the difference.

The restaurants are raising prices, adding service charges to bills, or finding new sources of revenue so they can raise wages and become less dependent on tipping. It’s a risky move, financially and culturally, but some restaurateurs say they are emboldened to try because of the disruption caused by the pandemic.

Their actions come as proposals to support restaurant workers by getting rid of the subminimum wage hit roadblocks. Although the federal minimum wage stands at $7.25 an hour, employers can pay tipped workers a subminimum wage of $2.13 an hour as long as their tips make up the difference.

Democrats recently proposed raising the federal minimum wage to $15 an hour and phasing out the subminimum wage, but the Senate parliamentarian decided that the proposal couldn’t be tacked

onto a big covid-19 relief bill, which will make it more difficult to pass a wage increase.

Chicago aldermen considered phasing out the city’s subminimum wage, currently $8.40 an hour for employers with more than 20 workers, as part of 2019 legislation that accelerated the timeline for reaching a $15 minimum wage in the city, which happens in July. That provision was removed under heavy lobbying from the restaurant industry, which said businesses couldn’t afford it and many servers would end up making less.

Some restaurant owners hope to show that it’s possible to pay servers at least minimum wage, which currently stands at $14 an hour in Chicago.

Big Jones, which specializes in Southern cuisine, since June has added a 20% service fee to dine-in bills and orders placed with a live person, and 10% to online orders. That revenue goes to payroll, allowing Fehribach to raise the hourly wage of servers to $18 to $25 per hour, depending on experience.

The kitchen staff also got a pay bump, to $16 to $20 per hour, and he hopes to raise wages more once business picks up.

The change has dinged his bottom line for now, but as dining room capacity restrictions loosen and sales improve he expects it will make financial sense and allow him to offer everyone health insurance.

While a few customers have posted nasty reviews online, the feedback largely has been positive, Fehribach said. Some customers still want to tip on top of the service fee, so he plans to bring back the tip line to credit card slips to give the option.

Servers are trained to explain that a 20% service fee has been applied.

Employees also are pleased, as the volatility of the pandemic made them appreciate a predictable paycheck, he said. “Had we done this at another time I’m not sure what the reaction would have been,” Fehribach said.

Garrett Allain, 37, a server at Big Jones for nearly three years, said he is earning about the same with his higher hourly rate as he was making with tips before the pandemic. On some busy nights he might make $50 an hour in tips, but there would be slow nights when he’d make barely anything at all, so “it balances out,” he said.

Servers also stick around now to help with tasks like filling salt and pepper shakers, and wrapping silverware instead of asking to leave once their tables are empty.

“You’re not working for your own tips in your own section, so everyone works together more, so I think it creates a better atmosphere with both employees and the staff,” Allain said.

Still, the change might not go over well at busy downtown restaurants.

Servers at higher-end or high-volume restaurants can make a lucrative living on gratuities, but at small or inexpensive restaurants or in poorer neighborhoods, they barely scrape by.

Employers are legally required to make up the difference if an employee’s tips don’t add up to the regular minimum wage, but worker advocates say that doesn’t always happen because of exploitative practices or shoddy record-keeping.

Tipped workers also can be reluctant to push back against unwanted sexual advances or other poor treatment because their compensation is tied to the customer’s happiness.

One Fair Wage, an advocacy group pushing to end the subminimum wage, has been trying to draw attention to the discriminatory aspects of tipping.

Studies have shown that Black servers receive less in tips than white servers even when customers rate the service the same. Since the pandemic hit, Black restaurant servers were more likely than servers overall to report a steep drop in tips and experience retaliation for enforcing mask rules, according to a February report from One Fair Wage.

Fehribach said his restaurant receives more unjustified complaints about servers who are women of color than any other group, and he imagines that affects their tips.

“It is not acceptable that customers will decide what to compensate my employee based on skin color, race, gender identity,” he said.

Pete Ternes, co-owner at the Bungalow by Middle Brow, a pizzeria and brewery in the Logan Square neighborhood, said he always thought the tipping system was “immoral” but feared the costs associated with paying servers more.

That changed when the pandemic halted dining service and the restaurant pivoted to a takeout and grocery model, prompting it to rethink how to pay tipped workers without alienating customers.

“We sat down deep in some spreadsheets and determined that with an obligatory service charge we could thread this needle,” Ternes said.

The restaurant has added a tiered service charge to customer bills — 10% for a grocery item, 15% for goods made inhouse and 20% for takeout — and plans to move to a uniform 20% fee this year that will stay once dining service returns.

Employees, no matter their role, now make $15 an hour if they’re part time and $20 if they’re full time. While that’s less per hour than some servers made in tips when serving dinner, they are working longer shifts doing different tasks — preparing food, washing dishes, cleaning up — so their overall pay is the same, Ternes said.

Customers haven’t complained about the fee, which Ternes owes to the pandemic making people “more generous and understanding.”

He hopes the goodwill endures once dining service returns because the higher wages mean he won’t be able to have as many servers working, which could affect the speed of service.

“You may have to talk a bit more in between glasses of wine,” Ternes said. “If that means the person serving you is living a happier and safer life, and can afford all the things they need, that seems worth it.”

At Paulie Gee’s, a pizza restaurant in Logan Square with a second location opening soon in Wicker Park, owner Derrick Tung scrapped the traditional tipping structure well before the pandemic because he couldn’t stomach the vast disparity between the pay of servers and the kitchen staff. On a good night, some servers and bartenders earned $38 to $72 per hour while kitchen workers made $15 to $19 an hour even though they were just as responsible for the customers’ experiences, he said.

He raised servers’ hourly wages, pooled their tips and split them across the staff, based on an equation that took into account their tenure and the shifts they worked. Tung said some servers resented the change, though he didn’t lose anyone.

He is evaluating other ways to structure employee pay because the pandemic has allowed him to do “a full reset.” He posed the possibility of a service fee on Instagram and got mixed responses.

“Some guests are very vehement about not wanting to be nickel-and-dimed,” he said. “They would rather just see price increases.”

His kitchen staff is happy, he said, and servers are averaging $20 to $25 an hour. Still, making it work will be challenging as long as he is an outlier.

“The concern from management is why would a great server come work for us if they can go down the street and make double or triple,” Tung said. “As long as there are other restaurants using the old model it will be difficult to get the best of the best.”

Many restaurants are reluctant to abandon the tipping system and worry how they would manage if local or federal policy eliminates the subminimum wage.

“If the labor cost goes up substantially, we will be forced to increase prices,” said Manish Mallick, majority owner of Rooh Chicago, which serves progressive Indian cuisine in the West Loop. “How will the guests treat that? A lot of guests already say pricing is really high.”