Local Ocean Seafoods on the Newport Bayfront has eliminated tipping and instituted a 20 percent service charge in order to pay employees a higher wage. (Photo by Susan Schuytema)

NEWPORT — Restaurants have been one of the hardest hit industries during the COVID-19 pandemic. Forced to shut down early in the pandemic, then allowed to re-open with limited capacity or take-out only, many restaurant owners had to lay off staff or close their doors permanently. Adding to the already bad situation is a labor shortage causing many restaurant owners to look at new options for sustainability.

In an effort to attract and retain a professional staff by providing living wages and stability, two area restaurants are eliminating tipping and paying employees a higher wage instead.

In July of 2020, Local Ocean innovated its compensation plan and instituted a 20 percent service charge on in-house dining. Local Ocean owner Laura Anderson said she had been thinking about that model for a few years but finally felt the time was right. “I was really nervous because I didn’t know how servers and customers would feel about it,” Anderson said. “When COVID came and we had the time to sit down and have those conversations, we were pretty convinced this model was a good fit.”

Nationally, thousands of restaurants have adopted a no-tipping policy to provide stable pay at uncertain times, build staff unity, and help retain staff.

The labor shortage has been devastating for many businesses and restaurants, nationally and locally. “We saw a 20 to 30 percent increase in summer visitation this year compared to normal years, with less staff to work,” Anderson said. “Many restaurants had less staff than ever, and turnover has been high. We feel like it’s been a game changer in terms of how we can recruit and retain people by paying better and increasing our health insurance benefits for more people. We are trying to smooth out the boom-and-bust cycle and create more high quality, high paying full-time jobs.” 

Anderson looked at what servers were making with cash tips and found she could do as good or better by having a set service charge on each ticket and allow for those tips to be shared with the kitchen staff and the workers in the back of the house.

The restaurant industry is traditionally known for low wages (in several states, restaurant workers who make tips can be paid sub-minimum wage). Servers often make higher wages with tips, so there has always been a front-of-house versus back-of-house disparity.

The tipping culture in American restaurants also runs deep. Diners are accustomed to being able to reward outstanding service, and servers enjoy seeing their hard work acknowledged. And since great service isn’t always rewarded by customers equally — it often is unfair, arbitrary and discriminatory — adopting a higher hourly wage could provide a new sense of stability to those in restaurant careers.

Anderson chose the service charge approach rather than raising prices. “People in the U.S. want to feel like they can give a gratuity. And I wanted it to be clear to the guests that there is an automatic gratuity. And we do accept an additional gratuity that servers can get. We find that people are tipping an additional 7 to 10 percent on top of the service charge.”

In the pay period from July 1 to Sept. 30, pay per hour for the entire restaurant staff was up 25 percent overall, according to Anderson, due in part to the service charge, but wage inflation as well.

For staff in the back of the house, Anderson said cooks and dishwashers saw an hourly increase in pay by more than 15 percent, which is particularly valuable to them as the restaurant goes into the slow winter months.

Agustin Maldonado Hilario, who has worked as a line cook at Local Ocean since it opened in 2005, said he likes the policy. “At the end of the day, I am pretty happy,” he said. 

Before the service charge, servers often didn’t qualify for full-time employment benefits. “It wouldn’t even be physically sustainable to work full-time on the floor 40 hours a week,” Anderson said. “What we can do is put servers into support roles — a shift boss, supervising, or on dock boxes — and get them into full-time work.” Because of that, most of them are taking advantage of the Local Ocean health insurance program.

Charles Howe, a server at Local Ocean for more than seven years, said although he was initially hesitant about the service charge, he wholeheartedly supports it now. “I think it was a bold and smart move on Laura’s part,” Howe said. “It has taken some adjustment on the staff’s part because you had money at the end of every day, and now you get a paycheck. But it’s a reliable paycheck, and we have health insurance, which we never had before. It’s a win/win situation.” 

Under this model, the servers work together and are not as competitive with each other. “It used to be that the more tables you got and the quicker you turned the tables, the more tip income you would have,” Anderson said. “Now they want to work together, and the customers get the best service possible. And our servers are just inherently happier.”

Sarah Prue has worked at the restaurant for almost eight years as a server and shift boss and agreed with Anderson’s assessment. “I think morale is high. It has brought people together. It changed the game from servers against servers to everybody uplifting and supporting each other.”

Customer reaction has been mostly positive. Some do not agree with the policy, but mostly it is because they incorrectly think that the restaurant is taking and keeping the service charge. Not true, said Anderson.

The service charge comes to the Local Ocean company and then is distributed among all the staff. “We made a commitment to ensure that our staff would get the entire service fee. We are growing wages and benefits in a highly competitive labor market. And it is paying off,” she said.

Carly Weaver, Local Ocean dining room manager for nine years, said tipping is very ingrained in our society, and some diners don’t want that to be taken out of their control. “Some people felt the power was taken away from them. But we wouldn’t have been comfortable putting on the 20 percent service charge if we didn’t feel our restaurant, our mission statement, our chefs, and entire team don’t present that great dining experience for our guests. It’s reflective of all of us doing a great job.”

“About 90 percent of customers are on board with it,” Howe said. “I think the other 10 percent aren’t the ones who like to tip anyway.”

Anderson not only hopes to dispel the myth that all service jobs are horribly underpaid but also that they are professional jobs that people choose as their careers. “Once you get past entry level, we can pretty much guarantee a living wage of $45,000 a year, with tenured, skilled kitchen workers earning upwards of $60,000 a year,” Anderson said. “Servers are in the $65,000 plus category, and we’re finally getting managers into jobs over $75,000 to $95,000.”

Creating that opportunity for people who work at Local Ocean to have a retirement, to take paid vacations, and to have health insurance is a priority for Anderson. “We want our wages to grow. We don’t want to pay them as low as we possibly can to maximize our own profit margins. That is not a successful company.”

Corlean Payne, who has co-owned Spyglass at Otter Rock with her husband, James, since 2017, is also making a move to a no-tipping policy once their restaurant fully reopens for sit down service. Since the pandemic, they’ve been operating on a skeleton crew and are currently only open for take-out.

“We tend not to be booming with walk-in business since we are off the beaten path, and this type of model could benefit every employee, both front and back of house,” Payne explained. “It is a struggle to adjust the mindset of what the service industry has traditionally been, but with COVID it seems to be a great time to make the move.”

Unlike Local Ocean’s service charge model, the Paynes are taking more of a profit-sharing approach over a percentage service charge added to a bill — a change, they believe, that can help the entire staff feel invested in the restaurant’s success. “We’ve been mulling over this type of model for years now, but the timing never seemed right,” said Payne. “It’s a tough sell for servers and bartenders who are used to the tipping model and almost tougher to sell this type of model to customers who have been conditioned to tipping.”

Payne said they are still fine-tuning how to implement the new policy in a way that benefits everyone so they attract long-term employees.

In terms of the profit-sharing model they are working on, Payne said the Spyglass model is similar to Local Ocean's but with the increases built in. There would not be an additional charge on a customer’s bill, but pricing would be adjusted to better reflect the costs on their end. “Your $10 burger might be $12 now — kind of similar to a 20 percent charge but it would not be singled out in that way,” Payne said. “There’s mixed emotions from guests on seeing an automatic 20 percent added to their bill, and we’d like to eliminate that part of it all together. The goal is higher base wages plus profit sharing and incentives for longevity.”

With nearly 60 years of combined experience with her husband in the restaurant industry and first-hand experience how difficult a restaurant career can be, Payne believes there’s got to be a better way going forward, particularly for employees who make working in the restaurant industry their regular living. “COVID has forced shutdowns and given people the chance to reevaluate just about everything. At the end of this, we expect the industry will be changed and hopefully for the better — less saturation, better quality and real employment opportunities for the long term.”

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