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Since they’ve reopened, three D.C. restaurants have changed how customers settle their bill with the aim of providing employees a better quality of life at a time when anxiety is running high. Seven Reasons, Thamee, and ANXO Cidery & Pintxos Bar have all instituted service charges in lieu of or in addition to tips. The goal of these new fees is to pay workers a living wage—enough to cover food, housing, health care, and transportation.
Ezequiel Vázquez-Ger, who co-owns Seven Reasons with Chef Enrique Limardo, doesn’t believe covering employee benefits is financially impossible because of restaurants’ slim profit margins. “It’s not viable if you keep the prices the same, but if you add a service fee or you raise prices, then it’s part of doing business,” he says. He also doesn’t believe tipping alone is the best strategy for rewarding talent. “Living on tips, and the uncertainty that it gives, shouldn’t be how a professional is treated,” he insists.
Currently, restaurants must pay their tipped workers at least $5 an hour. If an employee doesn’t earn enough tips to bring them up to the standard minimum wage of $15 an hour, the employer is required to cover the difference. In practice, this can be challenging to enforce and doesn’t always happen.
Although the District’s minimum wage is double the federal minimum wage and tied with San Francisco’s and New York’s for second highest in the country, it’s not always enough, according to this Living Wage Calculator. Someone working full time in the District, with no one to provide for, needs to earn at least $16.92 an hour in order to cover all their expenses.
During the city’s long, tense battle over Initiative 77, the ballot initiative that sought to raise the tipped minimum wage gradually until it equaled the District’s standard minimum wage, service charges emerged in discussions as a possible alternative to tipping. (Voters passed the ballot measure, but the D.C. Council overturned it.) While tips are optional and typically go to the dining room or “front-of-house” workers who directly interact with customers, money collected through a service charge belongs to the employer, who decides how to disburse it.
In May, after Vázquez-Ger and Limardo learned that most diners wouldn’t be comfortable dining out for a while, they implemented a 22 percent service charge to ensure workers had reliable income. The COVID-19 pandemic has made it difficult to predict how many customers will come through the door.
At Seven Reasons, Vázquez-Ger says the service charge allows the restaurant to pay both its dining room and kitchen workers at least $17 per hour. They also distribute some dividends as staff bonuses based on factors like performance and time with the restaurant. They also dedicate some of the service charge money to professional development events like lectures or networking opportunities within and outside of the industry.
Seven Reasons planned to roll out healthcare for staff this April, but the pandemic’s economic impact prevented them from doing so, according to Vázquez-Ger. (Healthcare coverage, one of the most common employee benefits in other job sectors, is still largely absent in restaurants.)
Seven Reasons still permits diners to add tips on top of the service charge. Vázquez-Ger says they’re finding customers are adding an average of 6.5 percent in gratuities in addition to the 22 percent service charge.
ANXO has also been experimenting with a new labor model. When its Truxton Circle location reopened its outdoor patio in early June, the cidery implemented two service charges: 22 percent for dine-in and 10 percent for delivery. While there is no charge for pick-up, customers are still welcome to tip.
Doing so has allowed sibling operators Rachel and Sam Fitz to pay kitchen and dining room employees at least $18 an hour. “We had gotten pretty wary of the tip system and the toll it takes on people,” Sam says. “Moving away from the tip system was a practical thing and a social justice thing.”
To determine the dine-in service charge, the owners calculated the average tip at ANXO as a little over 21 percent. Once you add credit card and administrative fees, it comes to about 22 percent. It felt like a fair ask of customers—pay what you were paying before, just in a different format. The change has been “incredibly seamless and non-confrontational,” Sam says. “It makes me wonder why we didn’t do it a long time ago.”
He also believes restaurants need to be honest about the true costs of doing business. “When we look at the future of our industry, it’s making us ask some hard questions that we really should have been asking before,” he says. “It’s really hard to make any money unless you drive your costs down as low as you can, which means paying people not fair wages.”
At H Street NE Burmese restaurant Thamee, their new 30 percent service charge, which took effect July 17, replaces a 4 percent “wellness charge” first implemented in October 2019. Partners Simone Jacobson, Jocelyn Law-Yone, and Eric Wang added the 30 percent service charge for pick-up orders. Thamee hasn’t reopened for on-premise dining.
The new charge allows Thamee to pay employees at least $17.50 per hour, provide healthcare coverage, offer professional development and advancement opportunities developed with staff input, and engage employees in the restaurant’s financial management, from reviewing profit and loss statements to discussing areas where they can reduce expenses. The aim is for the team to make financial decisions as a collective.
For Jacobson, there was never a question of whether to provide employees with these benefits. “We thought it was the right thing to do, so we did it,” Jacobson writes in an email. She says the response from diners has been positive: “Gratitude! Our audience has always been supportive of our efforts to be good citizens.”
Thamee announced the change in a statement it calls the Flat30 Manifesto. The statement articulates their values with an emphasis on being anti-racist. “For far too long, diners and restaurant owners have been complicit in accepting hospitality workers not earning a livable wage, not having access to healthcare, and not being able to navigate pathways to advancement,” it reads, noting that this is especially true for BIPOC workers. It says these workers are “largely overlooked for and absent from leadership positions, despite contributing many years to the hospitality industry. Simply put, restaurant workers deserve better.”
In the manifesto, Thamee further expresses its view on the tipped labor model: “Imported to the United States from Europe, tipping has a sordid legacy that stems from evading compensation for formerly enslaved workers. In order to be a truly anti-racist company and restaurant, we must acknowledge that this system of paying people is broken, and it is our shared responsibility to end this racist practice.”
Not all restaurants are using a service charge strategy to create a better work environment. For Call Your Mother and Timber Pizza Company Co. taking care of employees is baked into their prices. Workers at both restaurants, owned by Andrew Dana and Daniela Moreira, receive health insurance and free gym and yoga memberships, and are paid more than the $15 minimum wage.
All employees, regardless of whether they work in the kitchen or the dining room, wind up earning between $23 and $25 per hour, according to Dana. “If we didn’t have the customers, there wouldn’t be the money to make this happen,” he says. “We’re forever thankful to the communities that have embraced us.”
As the pandemic exacerbates the precariousness of restaurants as businesses and as sources of employment, it also illuminates what has long been ignored. The operators challenging the current system believe that if restaurants want to be financially solvent, ethical workplaces, they can’t continue standard operating procedures.
“If you’re going to cover the full cost of your employees, you have to generate more revenue,” says Vázquez-Ger. “You cannot finance your margins on someone else.”