How Minneapolis restaurants will (or won’t) make a $15 minimum wage work

No more tips? “I’ll get the hell out of the business,” says one server.

No more tips? “I’ll get the hell out of the business,” says one server. Ingram Publishing

A friend handed me a sheet of paper. At the top it read “Pathway to $15.” She’d gotten it at a meeting she says was attended by a who’s who of local restaurateurs.

“It was in a back room, in a really out-of-the-way space,” she said. “It seems like they’re trying to keep it quiet.”

“It” being a lobbyist-led campaign in response to the city of Minneapolis’ impending minimum wage hike to $15 an hour for all employees, including those who receive tips, like restaurant servers. I reached out to Pathway to 15 and heard nothing in response for weeks.

“Keeping it quiet” illustrates just how political the minimum wage proposal has become for those who have a stake in it. Many independent restaurant operators say they can’t possibly absorb the added cost of paying employees $15 an hour — not without going broke.

Currently, most tipped employees in Minneapolis make a base rate of $9.50 an hour at businesses that gross $500,000 or more annually, and $7.75 an hour at places that fall below that $500,000 threshold. Any additional income they make is in tips they receive from customers.

Kitchen staff must make at least minimum wage as well, though owners might increase that rate to attract better talent. In Minneapolis, kitchen staff making around $13-$15 an hour is not unheard of, while the national average is little more than $11 hourly.

If restaurant owners are to comply with the new rules, and pay a $15-an-hour base rate, many say they will have to resort to a no-tipping model and raise menu prices. In that case, instead of handing a 15 to 20 percent tip directly to your server, you’ll be paying more for the meal itself and letting management handle the mandatory $15-an-hour wages.

Many professional servers are bitterly opposed to this outcome, mostly balking at the possibility of giving up their tips. The potential to make far more than $15 an hour in tips is what drives them, and the hospitality industry as a whole.

Sarah Webster Norton is a career server who has been very vocal on the issue. She’s worked in the restaurant business for 24 years and says a server’s job is absolutely untenable at $15 hourly.

“There’s no way in hell. I’ll get the hell out of the business,” she says. “We’re dealing with the general public, and it takes an emotional toll on many of us. Dealing with the general public is a hideous job, so yes we get paid more. And we deserve to.”

A $15 hourly wage would mean a 50 percent pay cut for her and others like her, she says.

Norton and many of her peers are pushing for the “Pathway to 15” campaign’s solution, which includes a tip credit. With a tip credit, employers would pay tipped employees a minimum wage of $10 hourly. Tipped employees would make up the remaining $5 (or more) in tips. Employers would only have to pay above the $10 hourly minimum if a server were unable to make up the $5 difference in tips.

Independent restaurants, which tend to operate on a profit margin of around 6 percent, support the tip credit. They say they would not be able to offset additional labor costs without it. Upton 43, Victory 44, and Duluth’s Northern Waters Smokehaus all recently tried eliminating tipping and raising menu prices in an effort to increase hourly pay for all workers, but quickly nixed the idea. Josef Harris, of Upton 43 and Victory 44, says they found it difficult to make the math work.

“If we were to stay competitive price-wise we wouldn’t have been able to continue the no-tipping model. We would have priced ourselves right out of the market,” he says.

All the same, the city seems to be doubling down. Mayor Betsy Hodges has pushed back against what she calls a “tip penalty.” She recently issued an impassioned statement titled, “The case against a tip penalty (Hint: it hurts all workers, esp. women).”

Hodges says the number of servers working in high-end restaurants and bars and making far more than $15 is exaggerated. On average, servers actually make little more than $10 hourly, according to the U.S. Bureau of Labor Statistics as quoted in Hodges’ statement. Since service industry professionals are roughly two-thirds women, Hodges says that they are particularly affected by low wages — especially since studies show women who rely on tips are more subject to sexual harassment than those who don’t.

But servers like Norton say the mayor and the city don’t understand the industry. Restaurant owners cannot simply raise prices or add a fee to each meal (which they’d have to do in order to cover the minimum wage increase) and expect customers to keep tipping on top of that. To keep customers calm about the increased prices, owners would need to eliminate tipping, and if they do that, Norton says she and her peers won’t make the $30 hourly that they’re accustomed to. They’d make $15 an hour, a little under $30,000 a year, and, she says, start leaving the business because of it.

But there are many others who argue that tip elimination could mean a new day for the restaurant industry, one that offers a more sustainable career for kitchen workers, for instance. That line of work has traditionally meant far less financial reward than a server’s career.

And restaurateurs facing a minimum wage increase have already begun shifting their way of doing business. Uptown’s trendy Heyday has added an “administrative fee,” a 15 percent additional line item on customers’ checks. A note on the bill says that the fee acts as the server’s tip, but additional tips are also welcome. If you’re wondering how European restaurants seem to support servers on a salary without tipping, this is the model many of them use.

Danny Meyer, New York City’s most prominent restaurateur, famously did away with tips in all of his restaurants last year, yet it seems most guests just can’t stop tipping. It’s too ingrained in our dining experience. Regardless of how you may feel about the issue, changing this fundamental behavior is like swimming against the tide: slow, painful, and sometimes nigh impossible.

The only way to successfully implement such a wholesale shift in our dining tradition, many restaurant owners say, would be for all restaurants to do away with tipping at the same time. Otherwise, the best talent would simply go to the next restaurant (or the next town) where they have the potential to make far more than $15 hourly.

Dan McElroy, executive vice president of the Minnesota Restaurant Association, says he doesn’t have any predictions about how the minimum wage vote will shake out, but he has confidence that the vast majority of his members will adapt, no matter what happens. He’s reached out to his counterpart in Seattle, which is transitioning to a $15 minimum wage, and very few restaurants have closed due to the increase.

But he did say that they’re changing their operations in interesting ways, including implementing wireless POS systems for servers, allowing them to take on larger sections; kitchens buying more pre-prepped product, which cuts down on kitchen labor; and more fast-casual environments than ever before. He added that the average restaurant in that city employs 14.5 people, compared to Minneapolis’ average of 19.

And the bottom line is that, no matter what else happens, he says, customers are going to have to pay more. Prices go up in cities with minimum wage hikes, so that owners can cover their costs. So get ready to crack open those pocketbooks, Minneapolis. That, or get back into your kitchen and start rattling those pots and pans.