How To Offer Competitive Wages And Remove The Tip

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In our last blog post we furthered The Tipping rEvolution discussion and walked through our first compensation strategy when adding a surcharge and removing a tip. Today we’ll talk about our second strategy and show you exactly how it’s done!  Our next compensation approach is a split distribution of the additional funds you acquire from a surcharge. If your team is accustomed to a tip pool then take note; this strategy is most similar to that idea – the difference between the two is that the surcharge is taxed on your Guest Check. Therefore, the Government will undoubtedly receive their piece of the pie. In tip pooling, if your servers aren’t claiming their tips come tax season, the Government is SOL with that dough. That being said, just like implementing wage increases for your team, to properly introduce this compensation method you’ll need a few things on hand so you can determine exactly what percent of additional funds can be distributed to each team member. To review what historical data you’ll need for this, refer back to our last blog post here.

With that historical data on hand, you can get started. We’re going to stick with the same example from our last blog post, so again, if you need a refresher please refer back as mentioned above. In the example below, we’ll walk you through how a split distribution with a surcharge works. Anything in yellow is what YOU would enter based off of your operational information. Throughout the example you’ll notice that you can always view a before/after split distribution scenario; this is so you can view your base in comparison to your proposed change.

We started out by entering a surcharge percentage (15%) to get an overall idea of how much extra cash it would get us. You can see that the 15% surcharge produced an extra $762,478.25 (you’ll be surprised to find that when you start inputting your specific metrics, the surcharge may turn out to be far less to get what you need, than what you expected!). Keep in mind that your State Sales Tax will be applied to the guest check after the surcharge – hence the difference we mentioned above from a tip pool.

The next step is to play around with the percentage of funds that you would like to split up amongst your team. In the example below you can see on the right hand side that we weighted the distribution percentages based on prior percentages received from the tip pool. You can see the team’s prior wages (after the consideration of a tip pool) compared to their new wages with the corresponding split distribution. It’s very similar to what we did with our Wage Increase Method (strategy 1) except here we simply augmented the hourly wage with splits on that surcharge (based on a percentage).

After fiddling around with your distribution percentages you’ll want to make sure that you take a look at your EBITDA before and after adding the surcharge so that your change in EBITDA is as close to zero as possible (this means your EBITDA will be relatively similar to what it was before your tip elimination). Again, the goal here isn’t to apply a surcharge and ring your guests dry. The goal is to distribute the additional income produced by the surcharge in a way such that your team’s wages are comparable to what they were making before the loss of tips.

Now let’s talk considerations for a Split Distribution on supplemental income from a surcharge.

  • Front of the house is already used to working for their tips; this is similar so it keeps them motivated to work for their money.
  • You can more easily garner the buy and support of your team due to the fact that when the restaurant does better sales wise, the team gets a piece of the pie.
  • This becomes difficult to schedule out.
  • This is difficult to explain when hiring on for the BOH since they are typically used to a static wage.

In our closing blog for the month we’ll discuss our third and final strategy for compensation when removing a tip and adding a surcharge. Spoiler alert, this one’s our favorite! It combines the best aspects of both a Wage Increase and a Split Distribution… a win-win for everyone. Stay tuned folks!