By late 2020, just before the Denver minimum wage rose to $ 14.77 an hour and the tilted minimum wage rose to $ 11.75, restaurant owners were looking for a way to make up the difference, even though their stores remained closed during the pandemic .
“I did the math, and if we kept staffing the same, our labor costs would increase by essentially $ 100,000,” said Tommy Lee, who owns Hop Alley and Uncle restaurants, the latter with two locations in Denver.
Lee pondered his company’s finances and sought efficiency. Its labor costs make up around 35% of sales, while food costs are just under 30%. And the prices for ingredients also rose.
“Fryer oil is twice as much as it was a year ago; Chicken costs 30% more than a few weeks ago; and beef prices have risen by $ 2 a pound in the past two months, “said Lee. “At some point it has to be passed on to the customer.”
The answer for Lee and many others was not to raise menu prices; he doesn’t think customers would pay $ 25 for a bowl of ramen, for example.
Instead, a single item was added to the end of all take-away bills while the dining rooms were still closed: a 15% service charge that mimics tips but serves as revenue and can also legally be used to pay for the kitchen or “back-of” -House “, worker.
“We split it up across the workforce to try and get everyone to pay for what they’re used to,” Lee said. “I think some form of that is the future of restaurants, if we want to survive and get people closer to their living wage.”
Of course, a living wage is the reason why hospital staff wages have increased in a city where housing costs have skyrocketed over the past decade.
But restaurant owners like Lee blame the traditional tipping system for their unsustainable business models. They say it creates inequalities between their front and back of house workers that the current minimum wage hike is only compounding.
“Our biggest problem with hospitality is how the hell do you bridge the gap between the front and the ‘heart’ or what we used to call the ‘back of the house’,” said Juan Padro, the co-owner of several Denver restaurants, below Tap & Burger, Bar Dough and Señor Bear. “The way these companies are built and the way this legislation was written is really crippling the back of the house who are our most vulnerable employees.”
Since tips can only legally be given to workers who come in direct contact with customers, restaurant owners are now using the “service charge” to increase payment for those who cannot tip, such as those who cannot tip. B. Chefs and dishwashers.
In November, Padro and his partners introduced a 20% charge on customers’ bills and told guests that the restaurants had switched to a “service-inclusive” model.
Since then, back-of-house employees in the restaurants have made an average of $ 23-28 an hour on a points system, while those with customer contact are still making around $ 40 an hour between their wages, tips, and service fees.
“We only play by the rules,” said Padro and added: “The bottom line is that everything goes to the employees. The service charge model offers you enormous flexibility to take care of your employees. “
And while some customers were confused and even complained about the switch, Lee and Padro emphasize transparency in their approaches. They communicate that any tips in addition to the 15 or 20% included in the bill are estimated but not expected.
More than 50% of customers continue to tip in addition to the service charge, Padro said of his restaurants. Meanwhile, guests seated in Lee’s shops can still decide on their total tip amount; There is no automatic service fee for these dine-in customers.
“I think there is a perception in the US that the customer is responsible for their experience based on how much they tip,” said Lee. “In other parts of the world I love the model where the price on the menu is the (real) price and that’s all you pay for. That’s how a restaurant’s pricing has to be, but I know people are in a sticker shock….
“It’s just funny to think that someone who typically tips 20% will put 15% on their bill (and get upset),” he added. “If you’re complaining over 15%, you probably shouldn’t be eating out now.”
Lee saw the writing on the wall eight years ago when he first opened Uncle in Denver’s Highland and created a tip pooling system for his entire workforce that has become the current model. Now more and more restaurants are opening with a service fee to balance rising business costs with customer expectations for the price of a meal.
They also get creative with how they present it.
At Noble Riot, a wine bar that was just named one of the best bars in the country by Esquire magazine, co-owner Nicole Mattson and her team have increased their service fee by 18-20% over the past three years. In order to appreciate the support of its customers in this endeavor, the bar does not allow tips in addition to the fee under any circumstances.
“We let customers know we want to take care of them,” Mattson said of her policy. “If you ever feel that you haven’t received this care for any reason, we’ll remove the service charge – but that’s pretty rare.
“The vast majority of guests are eager to give more,” she explained, “and we suggest they leave a positive review online or refer a friend to us instead, as it helps just as much, if not more, than that additional 5% that they thought about leaving. “
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