The Stranger

In January, Eric Beinhocker, an author and economist, was in town to meet local venture capitalist Nick Hanauer and was staying at the W Hotel downtown when he noticed a strange surcharge on his room-service bill. As the Daily Beast's Michael Tomasky reported, the hotel chain had tacked on a 6.5 percent fee, ostensibly to offset the costs of Seattle's minimum-wage increase.

Beinhocker and Hanauer took to Twitter to air their displeasure: "Shameful—@WHotels 'surcharge' for paying its workers a living wage. Where's surcharge for CEO's pay? #fightfor15," Beinhocker wrote. Hanauer joined in: "Hey @WHotels you charge a 6.5 percent surcharge for paying workers fairly, but no surcharge for the $4 million you pay your CEO. Why???"

Afterward, a representative for Starwood Hotels, which owns the W Hotel chain, tweeted back to Beinhocker: "After review, we decided to end the policy."

But, it turned out, it wasn't just a corporate hotel chain imposing these surcharges.

The Stranger also found that the Crab Pot, Bar Vacilando, Capitol Cider, John Howie Steak, and Crossroads Trading Co. all tack on minimum-wage surcharges between 2 and 5 percent.

In a follow-up story for Hanauer's site Civic Ventures, Paul Constant, the former Stranger books editor, noted two other businesses that impose similar surcharges: Capitol Hill's Garage, a bowling and billiards joint, and Spokane's Waddell's Brewpub and Grille.

While it is perfectly legal to charge extra for services, so long as that line item and its recipient is noted, some wonder if the surcharges are a Seattle-style passive-aggressive guilt trip.

Sage Wilson, spokesperson for workers advocacy group Working Washington, described the surcharges as "an attempt to score a political point."

A more equitable system, he said, is imposing an automatic 20 percent surcharge on customers' bills in lieu of tipping. Some Seattle restaurateurs, such as Renee Erickson, have switched to this system. The 20 percent flat fee, said Wilson, is "clearly about changing the model in the restaurant industry... [and] changing the way compensation works for our lowest-paid workers in our city and state."

In contrast, business owners choosing to tack on a small surcharge, which in some cases is 2 percent or less, "is about applying political pressure," he said.

"Credit-card processing costs more than that," Wilson said. "That's not about the books. A 2 percent surcharge is something that's rarely noticed. That's basically inflation from year to year."

Stephanie McManus, communications advocacy manager for the Washington Hospitality Association, which also represents the restaurant industry, disagrees.

"With most restaurants, most of them are too busy to be political," she said. "They have to stay afloat... I think people see restaurants as significantly more profitable than they are, especially in the city of Seattle."

McManus said choosing to impose a surcharge to offset minimum-wage increases is "a math equation, it's not a political equation."

Julie Tall, owner of Capitol Cider, which currently tacks on a 5 percent living-wage fee, described Constant's article as "distasteful" because it didn't take into account how the minimum-wage increase is affecting small businesses.

"I believe in a living wage and I'm proud of Seattle for spearheading us on this in the country," she said. "The problem with the restaurant industry is that the numbers don't work."

Per city minimum-wage regulations, most small businesses will have to pay a $15 hourly wage by 2021. Currently, Tall's servers and hosts make $11 an hour, plus tips, to comply with the minimum-wage schedule. Cooks and dishwashers make $13. For her staff of 47 people, which includes five managers, she says that increasing everyone's wage by $1 would add up to $2,000 per person annually. Bumping wages up by $5 would cost $94,000 annually, on top of rent, food, and other overhead costs, not including her own salary.

Since implementing the 5 percent living-wage charge, Tall said her employees' tips have not gone down.

"Most people feel very comfortable with it and understand that we're doing something progressive here," she said. "With the $15 minimum wage, restaurants are struggling... I haven't been profitable for the last three months. I can't keep my doors open if I can't figure out something to do. This [surcharge] felt like the most respectful way to do it and still function on the Hill."

But, despite the thin margins, the Seattle food and drink industry is booming. From 2012 to 2015, the City of Seattle issued about 25 restaurant permits per month on average, the Big Picture, an economics blog, reports. Seattle's Department of Finance and Administrative Services said that the number of business licenses for full-service restaurants in Seattle has nearly tripled—about 340 to 910—since 2010.

When the idea of increasing Seattle's minimum wage to $15 was first introduced, the restaurant and bar industry was divided. Many opposed the wage hike and still do.

"I think it's not a coincidence," Wilson said, "at least not through what I have seen, that these [surcharges] are very often associated with business owners who opposed the [minimum wage] initiative."

One of those people is Mike Bitondo, general manager at the Garage on Broadway. According to Public Disclosure Commission records, in 2014, Bitondo donated $500 to Forward Seattle, the group that opposed a $15 minimum wage.

Garage representatives recently wrote in a Facebook post that the surcharge "is not a response to minimum-wage increases. We have gladly raised wages in accordance with our city's ordinance the last few years and will continue to do so."

"The fee," they wrote, "is the result of a recent state tip pooling regulation that denies all back of house employees to be included in any tip pool. This resulted in a tremendous loss for them, so we added the small percentage to all our products in direct correlation to the amount of money they would have received in tips."

The National Restaurant Association (NRA) has been battling with the United States Supreme Court over tip pooling—the gathering and redistribution of tips among front-of-house and back-of-house employees—for years. Currently, tip pooling policies are regulated by the US Department of Labor, which outlawed the practice in 2011. The NRA is currently challenging this mandate in court, food news site Eater reported.

Working Washington's Wilson questions whether small surcharges actually allow the Garage and other restaurants to compensate employees affected by tip pooling. Why don't these businesses simply increase prices instead? Wilson noted: "If 2 percent or 5 percent is the difference to pay a living wage, it's kind of remarkable that there was so much resistance for so long. For most customers, most of the time, you wouldn't notice a 2 percent difference on your bill."

Small price increases are different for retail businesses than restaurants, said Gina Nowicki, senior communications director for clothing store Crossroads Trading Co., which implemented a surcharge in June 2016. A note at the cash register of the Broadway location read: "A 2% surcharge is added to all purchases to support increasing wages for our employees and help keep our prices low."

"There is currently no simple way for us to increase our prices by 2 percent across the board" Nowicki said. "We value the transparency of the surcharge."

She continued: "We are in a unique position because we're buying clothing from the public. We don't have centralized buying. If [our inventory] came from a warehouse, we could [raise prices]."

Officials with the City of Seattle's Office of Labor Standards regularly talk to business owners grappling with implementing the higher hourly wage, said Karina Bull, a senior policy analyst.

"They're responding to increased costs," she said. "Some of them are choosing to find the money from places that exist, others are choosing to raise the cost of goods, some are reducing labor costs, and some are adding these surcharges."

Businesses aren't required to notify city or state offices if they do decide to implement a surcharge.

Peter Lavallee, communications director for the Washington State Attorney General's Office, said that the department has received consumer questions regarding living-wage surcharges since SeaTac and Seattle increased their minimum wage to $15 in 2014.

"[Raising] a price for a particular item is unlikely to mislead consumers," Lavallee said. "How you might phrase a surcharge you're imposing might be more concerning... I would ask consumers to be aware that it is illegal for a businesses to mislead you as a consumer."