Chicago to Phase Out Sub-Minimum Wage Rates for Tipped Workers

He worries it could deepen the pay disparity between well-paid front-of-house workers who will be getting raises and their counterparts in the kitchen, who have always taken home less money because they don’t collect tips.

And alarm raised by restaurant owners about the impact higher labor costs will have on their bottom lines and on menu prices is not just noise, said Bayless, whose Chicago restaurants include Frontera Grill and Topolobampo. “A lot of people look at (the) restaurant world and say, ‘Well just pay them more,’” Bayless said. “But it is a zero sum game.”

Still, the chef, who implemented a service fee in his full-service Chicago restaurants during summer 2020 and now pays servers at Frontera and Topolobampo at least $25 an hour, said the phaseout is necessary. While servers at high-end downtown restaurants can make a lucrative living off of tips, he said, many waitstaff at smaller neighborhood restaurants are just getting by.

“We have to ensure that everybody who’s waiting tables in all the restaurants, no matter whether they’re high-profile or your local diner,” he said, “that they’re being taken care of.”

Under existing law, Chicago bars and restaurants can pay tipped workers, such as servers and bartenders, $9.48 an hour, 60% of the full minimum wage of $15.80. [Some states allow the wage for tipped workers to be as low as $3.63 per hour.] If workers’ gratuities do not float their hourly wages above the full minimum wage, restaurants are required to make up the difference, although advocates argue that doesn’t always happen.

Under the new law, the gap between the tipped and full minimum wages will shrink 8% each year until the tipped and full minimum wages reach parity in 2028.

Supporters of the legislation say that working for tips keeps restaurant workers’ wages unpredictable and leaves them vulnerable to customer harassment and racial biases. Opponents, including the Illinois Restaurant Association, say the measure will cause restaurants skating by on already notoriously thin margins to cut staff, raise menu prices and close down.

An earlier version of the proposal would have phased out the subminimum wage over two years instead of five; in a statement, the restaurant association referred to the final deal as a “compromise we can accept.”

One Fair Wage, a nonprofit organization advocating to eliminate the subminimum wage around the country, estimates about 100,000 tipped workers in Chicago will be impacted. The restaurant association estimates there are more than 7,000 food service providers, including bars and restaurants, across the city. The question moving forward will be what impact the new measure has on their bottom lines.

“I just don’t want to be the guinea pig,” said Alexis Pavlatos, an attorney who moonlights as a bartender on busy Friday and Saturday nights at Good Night John Boy in the West Loop and Benchmark Chicago in Old Town. Pavlatos said she often makes around $60 an hour, the vast majority of which is made up of tips, and hopes patrons won’t tip less as a result of the legislation. If her tips go down significantly, Pavlatos said, she may stop bartending. “I’m just a little bit nervous,” she said.

“We’re talking about a portion of the population that generally works for lower wages in an industry that generally does not provide things like health insurance, paid vacation, sick days, lots of other perks that almost every other industry does provide for their employees,” said Will Stahl, a veteran bartender who supported the legislation.

Eliminating the subminimum wage, Stahl said, was the ethically correct thing to do.

Some restaurant owners, reeling from years of pandemic pain, say it’s not so simple.

“The legislation purports to help tipped workers, but it’s not, because it’s putting the restaurants they work at at risk,” said Michelle Durpetti, managing partner of Gene & Georgetti in River North. Durpetti estimated that paying the full minimum wage could cost the steakhouse upward of $250,000 a year, and said everything is on the table: raising menu prices, implementing a service fee and even closing.

“This is going to force restaurants to dramatically cut costs” or raise prices. “Everything is going to have drama to it,” she said.

“Restaurants have been falsely inexpensive for a really long time,” said Zoe Schor, chef and owner at Split-Rail in Ukrainian Village, who supports removing the subminimum wage. Diners at Split-Rail pay a 20% service fee that goes to hourly wages for staff, which start at $18 an hour, as well as benefits such as health care for full-time employees. Split-Rail also offers paid vacation time and a 401(k) match for staff who’ve worked there more than a year.

“As a very small, very scrappy independent restaurant owner I will say simply if you can’t figure out how to pay people a living wage and stay open, then maybe you can’t stay open,” Schor said.

Los Angeles already bans the practice of paying tipped staff less than the regular minimum wage, but does so under California state law. Alaska, Minnesota, Montana, Nevada, Oregon and Washington also require servers to be paid a full minimum wage. Washington, D.C., residents voted to phase out the subminimum wage last year. A legal battle over a phaseout of the subminimum wage is ongoing in Michigan courts.

With the eyes of the hospitality industry on Chicago, One Fair Wage is eyeing new targets. President Saru Jayaraman said the organization has spoken with several Cook County commissioners on the issue, and said legislation would be moving in Puerto Rico and nine states, including Illinois, come January. At a news conference last Tuesday, Ald. Michael Rodriguez, 22nd, described the Chicago vote as “one giant step” toward the goal of eliminating the subminimum wage across the U.S.

The Illinois Restaurant Association and One Fair Wage cite dueling data about how workers and restaurants have fared in states that have eliminated the subminimum wage.

“There is a lot of uncertainty,” said Michael Lynn, a professor of consumer behavior and marketing at Cornell’s School of Hotel Administration, who studies tipping. “You have to let it play out and see.”

Lynn said research shows that in states with no subminimum wage for tipped workers, consumers do tip less — “but not a whole lot less.”

The impact on diner demand is also not clear-cut, though Lynn said demand in Chicago will likely go down in the short term, before customers adjust to higher prices and demand eventually builds back up.

If restaurants raise menu prices 15% in an effort to pay the higher wages now required by law, people who typically tip less than 15% would experience a price hike, Lynn said. Customers who usually tip more than 15% would experience a price drop, although they are the diners who tend to be less sensitive to price in the first place.

At the same time, “people tend to focus on the biggest most salient price and tend to ignore all the surcharges, unless you start surcharging them to death, which many restaurants have started to do,” Lynn said.

Demand will go down because diners are going to feel like prices went up, agreed Jean-Pierre Dubé, a professor of marketing at the University of Chicago’s Booth School of Business. That demand will not necessarily bounce back, he said.

Dubé speculated diners wouldn’t be discouraged from going to restaurants in the first place, but that they’d order fewer dishes and less expensive ones when they do.

Michael Roper, owner of Uptown brewpub Hopleaf, estimates that increasing hourly wages to $15.80 per hour will cost the restaurant between $78,000 and $104,000 a year. Fewer than a third of his tipped employees make the subminimum wage as their hourly base rate, he said; the rest make in between the subminimum and general minimum wage.

Hopleaf will need to make up that difference by cutting staff and raising prices, he said.

“You don’t want to cut so many people that service suffers,” Roper said. “But you also, you know, can’t afford to have somebody making $15 to $16 an hour who isn’t busy.”

“The reality is,” he said, “we aren’t as busy as we were a few years ago.”

In a restaurant association survey of a few hundred Chicago restaurant operators, 80% said they would likely raise menu prices in response to the elimination of the subminimum wage, while two-thirds said they’d reduce staff or consolidate positions. A quarter said they would change their service model to include more quick service or counter service.

One Fair Wage and its allies argue that the subminimum wage leaves tipped workers vulnerable to exploitation.

A city-commissioned report of tipped workers done by researchers at the University of Illinois and at the University of Chicago’s Booth School, which recommends the end of the subminimum wage, found close to 80% of workers had been required to work off the clock in the month prior to the survey, while more than half reported being illegally required to share tips with their managers during the week prior to the survey.

Tina Hines works as a bartender and shift lead at Reno, a restaurant and wine bar in Logan Square. Tips at the restaurant are pooled, and Hines’ hourly wage and share of the tip pool depend upon what role she’s filling on a given shift. On a slow day, she might make around $27 an hour. On a busy shift, she can earn closer to $50 an hour. She made about $50,000 last year.

She’s grateful management at Reno is transparent with its staff, she said. But she knows plenty of people who have worked for bars or restaurants that aren’t as transparent about tips, meaning they’re never quite sure if they’re taking home what they’re entitled to.

It’s for that reason, she said, that she supports the legislation, even though she thinks it’s possible some people may tip less. The new paradigm will ease “some of the sort of opaque, weird, shady stuff that can go on behind management’s closed doors in the restaurant industry,” she said.

On Thursday afternoon in restaurant mecca Fulton Market, many Chicagoans who spoke with the Tribune said they weren’t familiar with the tip legislation, or were only vaguely aware of it.

Emily Patton, a 26-year-old Wicker Park resident, waited to lunch outside Beatrix with her mother, who was visiting from out of town.

“To me it makes sense to get them up to the same level,” said Patton, who said she typically tips 20% at restaurants.

Would she tip less if she knew restaurant workers were earning more per hour?

“I don’t think so,” Patton said. “Just behaviorally, it’s so set.”

======

©2023 Chicago Tribune. Visit at chicagotribune.com. Distributed by Tribune Content Agency, LLC.