In anticipation of Seattle’s historic minimum wage increase, many restaurants have struggled to figure out how to cover higher labor costs. Restaurant owners agree that menu prices will have to increase at least slightly, but beyond that, most seem unsure of what to do. Add surcharges and service fees? Eliminate tipping? Accept lower profit margins? Most business owners have adopted a “wait-and-see” approach, looking to what their colleagues do in the coming weeks and months before implementing any significant changes of their own.
But at least one Seattle restaurant is taking action. Starting April 1—when the minimum wage for Seattle workers will increase from $9.47 to either $10 or $11—Ivar’s, the iconic local restaurant chain famous for clam chowder and fish ’n’ chips, will raise the wages of all employees at Ivar’s Salmon House to $15 an hour. They will also remove the tip line from checks, effectively eliminating tipping.
Bob Donegan, Ivar’s president and CEO, said that the Lake Union restaurant will be the only location of his restaurant chain to introduce the no-tipping system. Ivar’s will follow the city’s new minimum-wage ordinance for its fast-food seafood bars, but is immediately raising wages to $15 an hour for everyone who works in its full-service restaurant. “We are testing different models in different divisions,” says Donegan.
On Saturday, March 21, managers at Ivar’s Salmon House held a meeting to present the new policy to staff, giving them just 10 days’ notice of a complete overhaul to the way they get paid. One longtime server, who spoke on the condition of anonymity, expressed anxiety and fear over what the new policy would mean for yearly wages, for both servers and back-of-house staff.
The basics of Ivar’s new policy will go like this: All employees, both tipped waitstaff and non-tipped back-of-house staff, will earn $15 an hour. (Currently, waitstaff make the state minimum wage of $9.47 plus tips, while back-of-house wages range from $12 to $15 without tips, according to Donegan.) Discretionary tipping by customers will be taken away, and instead all waitstaff will receive an 8 percent commission on sales, while back-of-house staffers will receive 9 percent of sales.
But back-of-house staffers won’t receive equal amounts of that 9 percent. Donegan said that sharing will be “determined by your position in the company, so sous chefs get more than cooks, and cooks get more than dishwashers or bussers. The more skills you have and the more tenure with the company you have, the more your share of the [commission] is going to be.” He believes the new system will address the wage discrepancy between higher-earning front-of-house staff and back-of-house workers, whom everyone agrees deserve higher wages.
To cover the increase in labor costs, says Donegan, “menu prices will be about 20 percent higher, but included in the menu price this year is the tip.” Donegan explained that “over the last decade, tips have remained pretty consistent at 17 percent. Ivar’s is taking that 17 percent average gratuity and adding it into menu pricing, as well as adding an extra 4 percent.”
Here’s what the price increase will look like for customers: “If last year you bought a menu item for $10, your bill would have been $10,” says Donegan. “And when you signed your credit card slip or paid with cash, you would have given $11.70 to Ivar’s. That’s a $10 bill plus 17 percent tip. This year, the $10 bill would be $11.70 plus 40 cents, which is 4 percent of $10. And so your bill would be $12.10 this year, compared to $11.70 last year.”
At the employee meeting last Saturday, every server was given a sheet comparing his or her 2014 earnings against Ivar’s projection of earnings with the new system. While back-of-house earnings will rise, the future wages of servers are less clear. Averages are difficult to work off of because tip earnings vary widely from server to server.
Regarding the company’s swift move to $15, Donegan said, “We made the decision for two reasons: One, we always comply with the law. Two, we don’t want this to be a case of incremental changes over the next four years. We said, ‘Let’s get it over all at once.’”
As a member of the mayor’s Income Inequality Advisory Committee, Donegan negotiated on behalf of the business community and organizations including the Washington Restaurant Association and Seattle Metropolitan Chamber of Commerce to ensure the new minimum-wage law included a tip credit (which allows employers to account for tips and health care in an employee’s wage increase)—something many restaurant owners claimed was essential to their ability to survive an increase in labor costs. Allowing restaurants to use a tip credit was one of the most divisive elements of the $15 debate, and its inclusion was what ultimately got many businesses to support the new minimum-wage law.
Donegan, who also helped fund the anti-$15 initiative in the City of SeaTac, called the minimum-wage ordinance with tip credit “the least offensive of the imperfect solutions.”
While Donegan prides himself on knowing the names of his employees, some of whom have worked for the company for more than 30 years, he’s less interested in having a conversation with them about their wages. The new Ivar’s system, he says, “gets everybody to $15 quicker, and we don’t have to have this continuing, ongoing discussion with our employees and customers.”
“Over the course of the year, our goal is that everybody who works in the restaurant in 2015 will make as much as or more than he or she did in 2014,” says Donegan, pointing out that Ivar’s will not make any changes to employees’ other compensations. The company will continue to offer full benefits to full- and part-time employees, as well as match contributions to 401(k) plans at 50 percent. But whether Ivar’s can achieve its goal of equal or increased wages for all its workers, like everything else about this minimum wage ordinance, remains to be seen.
So how will customers experience the new tipless system at Ivar’s Salmon House?
As they debut their new system, Ivar’s will have more managers on the floor at every shift. Managers, rather than hosts, will escort diners to their table and explain the new no-tipping policy. Donegan says, “There will be a little message on the menu and there will be table tents in the bar that say ‘No tipping, please,’ with a couple of paragraphs that explain it.”
After the meal, instead of having the check presented by servers, most bills will be presented by a manager, who will remind customers of the no-tipping policy, and customers will have a chance to ask questions. There will no longer be a line on checks that reads “Tip.”
The Ivar’s employee I spoke with was uneasy about this new model, which removes the very mechanism by which many servers have managed to carve out a living over the years. While it may be an imperfect system, it’s a familiar one, and one that can be counted on for a decent income.
According to the server, the company was “completely removing the option” of tipping. “If guests want to leave extra gratuity, we have to go get a manager.”
But Donegan denied this policy: “We are discouraging tipping, but we are not preventing it.” He went on to say: “If someone wants to leave a tip, all he or she has to do is write on the credit card slip, ‘Tip: $3’ or ‘Tip: plus 5 percent,’ or leave the cash on the table. And that tip, the whole amount of that tip, will go to the server or bartender.”
Sounds simple enough, but without a tip line and after being encouraged not to tip, will customers go through the trouble to give servers more money? That also remains to be seen.
While Donegan says, “Our employees are our most important resource,” he’s also fine with the possibility that staff may leave because of the new policy: “If you as a server don’t like the uncertainty of this system and you think you can do better, by earning all of the tips that you’ve earned in the past, and you want to be on your own, that’s okay.”
Donegan says that Ivar’s does not expect to make any extra profit once the new system takes effect: “Our goal is that there will be no effect on the bottom line at all. We’re not planning on any additional profitability to the company coming out of this program.”
In the end, Donegan admits, “None of us know how this is going to go.” While he is optimistic that Ivar’s new model will work, the employee I spoke with wasn’t so sure.
“I just want to know if what Ivar’s is doing is right,” the employee told me. “I wonder if the industry is moving in the right direction.”
Judging by most restaurant owners’ actions (or inaction) to date, it seems the industry is wondering the same thing. In the months ahead, they will certainly be looking at Ivar’s to see what happens.