Talking Tipping, Minimum Wages, Hospitality Fees and Atlantic City

Amid regulatory changes and a plan to hike the minimum wage, could the Atlantic City restaurant experience be about to change? And how might the restaurant of the future be organized? Last month, we sat down with a local restaurant owner and two servers with decades of experience here and elsewhere, to talk about tipping practices and how best to reward talented staff, both in the kitchen and the restaurant.

Scroll down for the recorded audio of the conversation, or find it by subscribing to Route 40 on your favorite podcast platform.

The planned minimum-wage increase means that a lot of business owners are going to have to rethink how they do payroll, said Michael Brennan, chef and co-owner of Cardinal Bistro in Ventnor. “Hopefully it breathes inspiration,” he said on the podcast. “Let’s develop a system that abides by all the rules, all the laws and still treats everybody equally and fairly… that’s what needs to happen in this industry and this area.”

Hospitality business owners in the Atlantic City area are broadly worried by the talk of a minimum wage increase: more than a few casino executives were discussing the issue on the sidelines of a recent Chamber of Commerce event in Atlantic City. Brennan noted, however, that while he can understand the concerns from the owners’ point of view, if people in the Atlantic City area are making more money, they will also have more to spend on going out to bars and restaurants.

Meanwhile, front of house, some employees are troubled by plans by President Trump’s administration to allow pooling of tips. The new rules would allow employers to collect tips themselves and choose how to distribute them, potentially keeping some for the restaurant owners. These issues are particularly important in and around Atlantic City, where almost a third of all jobs are in the leisure and hospitality sector.

Photo by Rachel Voorhees, reproduced under Creative Commons license via Flickr.

Waiters have long been fighting against dilution of the tip pool, with many restaurants already splitting tips with busboys, hosts and other staff, said Michael Fagan, a long-time Atlantic City-area waiter who runs the video series Waiter Nation. Changing the tipping system to pay front of house and kitchen staff more equally would affect the quality of service, said Fagan, arguing that the best waiters will work where they can make the best tips. “Talent will go where there’s most reward,” he said. If a $15 minimum wage comes in and there are no tips, Fagan joked that he would go and work at a dollar store. “If you pay everybody the same, you’re saying everybody has the same qualifications,” he said.

Cardinal Bistro’s Brennan said he doesn’t agree with paying everyone in the restaurant the same wage. “Every server has a value of return customers,” he said, noting that guests will go back to a restaurant because the service was good. Unlike with kitchen work, it is hard to train someone to have the personality or ‘x’ factor that makes them a great waiter, Brennan said.

Christian Correa, another waiter with years of experience in the area and out of state, said the problem with tipping is that it’s no longer about service. “I would love to see it not exist because you’re essentially asking everyone who goes out to dinner to now also pay the salaries of all the servers,” he said. “And it’s become a norm and I don’t think it’s a healthy norm.” Correa’s view was echoed by people who contacted Route 40 on social media to talk about tipping. Several said they would like to see a minimum wage and for tipping to return to being an acknowledgement of great service.

Brennan said that restaurant owners are facing many challenges including record-high food costs and a seemingly endless list of business and administrative costs. It would be difficult to raise wages across the restaurant, although he would like to be able to pay more. Correa said that when he worked for an Australian restaurant company in California, he was paid a higher hourly wage of $11, and the restaurant’s prices were not higher because of that. There should be more discussion about how restaurants could be run without tipping, Correa said. “I’m intrigued about the idea of saying, let’s say waiters don’t get tips anymore…What does a restaurant look like?”

There was a lot of talk on our podcast about the kind of restaurants that might be able to migrate to a ‘hospitality included’ system, where guests pay higher prices or a fixed rate that’s added to their bill so that the restaurant owner can better pay and distribute wages to both front- and back-of-house employees. This could help better-reward kitchen staff, said Brennan. Wage data from the Bureau of Labor Statistics (details below) suggest that currently service staff in and around Atlantic City are better-compensated than peers outside of the area, while there is less of a difference between chef wages in the AC area and across the United States.

The three podcast participants agreed that the current system needs to change, but there were diverse views on how the restaurant of the future, in the Atlantic City area, should look.

Listen to the podcast, recorded last month at Cardinal Bistro, here:

New Jersey’s Minimum Wage And Tipping Backstory

New Jersey Gov.-elect Phil Murphy has pledged to raise the state’s minimum wage to $15 an hour. Beyond saying that he would phase in such a wage hike over several years, Murphy has not given many details. It is not clear whether a provision that allows a lower rate ($2.13 an hour) to be paid to servers would continue.

An effort by state Democrats last year that would have raised the minimum wage to $15 by 2024 was vetoed by Gov. Christie, and a follow-up attempt to place the issue on the November ballot as a public question also failed. Under the current legislation, the minimum wage in the state is set to rise to $8.60 next year from $8.44 this year. Tipped employees, however, only receive that rate if – for some reason – they get no tips, in which case the employer is responsible for paying them up to the minimum wage for the hours they worked in a given week (everyone we spoke with seemed fuzzy about how this works in practice.)

At the same time as the minimum-wage hike is troubling employers in Atlantic City’s hospitality industry, President Trump’s administration has proposed rules that would allow employers to pool tips and redistribute them as they see fit. The rules could go into effect in January, after a comment period this month (that link is to a great feature story on the topic at Eater). Waiters are concerned because many major restaurant owners were sued for withholding tips from servers in the years before legislation to end tip-pooling was introduced in 2011.

It is not clear whether more restaurants might migrate to a hospitality-included system if higher wages are forced onto business owners. Hospitality-included became a buzz word when restaurant owner Danny Meyer decided to end tipping at some of his restaurants in favor of a higher prices. Other restaurants – and this is common outside of the United States – have experimented with adding a fixed rate for service to each guest’s check. You can read more about Meyer’s experiment here.

When we talked with readers about our plans for this podcast, one got in touch with a link to this Mother Jones article on the history of tipping in the United States. Did you know there was once a ban on tipping? In the early part of the last century, tipping was frowned upon because it enabled restaurant owners “to save money by hiring newly freed slaves to work for tips alone.” The article also has more details on the history of the $2.13 “tipped minimum wage.” New Jersey is one of 18 states with that system – other states use either a higher tipped minimum wage, or guarantee the full state minimum wage.

And for more on Atlantic City-area wages, check out this table of average hourly dollar rates based on 2016 Bureau of Labor Statistics numbers: