Economic Considerations of Eliminating Tips (Infographic)

 

Is the U.S. restaurant tipping model on its way out? Amid concerns over whether compensation for back-of-the-house and front-of-the-house employees is fair and how the push for raising minimum wage will impact cost-cutting measures, the tip reform movement is stirring up controversy. Earlier this month, Danny Meyer, CEO of Union Square Hospitality Group, made waves in the industry when he called tipping a “broken system” and announced that his restaurants would phase out tipping by January. The pros and cons of this consideration have impact from the board room to the dining room, and servers, cooks, owners and customers have a stake.

But what about the economic impact? Reporting tips for tax purposes is one of the most complex requirements for restaurants and their employees. Here is a look at the potential effects of eliminating tipping:

Owners Adjust for Higher Wages, Lose the Tip Tax Credit

Federal law allows restaurants to pay servers $2.13 per hour with the server’s tips expected to meet or exceed federal minimum wage requirements. Some states — like New York which will have a $15 minimum wage for fast food workers in 2016 —require a higher minimum wage. Additionally, there is a federal income tax credit (IRC 45B) that the restaurant can take for all tips reported by the server in excess of $5.15 per hour. This gives the restaurant an incentive for encouraging their employees to report all their tips. In a non-tipping environment, restaurants would have to pay higher wages and higher employment taxes, but would have a larger deduction for the increased wages and payroll taxes.

The federal FICA tip credit has been a significant benefit for a number of restaurants over the years. Restaurants that are considering changing to a no-tipping policy may be giving up a substantial tax benefit, and need to take that into account when setting menu prices or additional service charges to help finance the increase in non-tipped wages.

Some fine dining establishments who have eliminated tipping have added a service, hospitality or administrative charge, while others have raised menu prices to compensate. It's important to note that service charges do not constitute tips for the purposes of the federal FICA tip credit.

Employees gain predictability, but not guaranteed higher earnings

Servers are required by law to report all tips, but the IRS has suggested that as much as 40 percent of restaurant tips are not reported. If this is true, many employees are paying less income and employment tax than they should in a tipped environment. In a non-tipped establishment, employees receive wages which may or may not be as much as they earn in a tipping situation. Ideally, the non-tipped wage would create more predictability in employees’ income, eliminating the uncertainty associated with fluctuating tips from shift to shift. However, some will do better and some worse under a no-tipping model. Bonuses may be necessary to retain servers.

Calculation: Let’s take a look at a simple example of how the FICA tip tax credit works.

It remains to be seen whether the tip elimination trend will be a mere crest or a tidal wave of change in the restaurant industry. It is clear, however, that the business impact could be substantial, and restaurants would need to adapt practices accordingly. Even if restaurants and employees can thrive on a no-tipping model, how will customers react? Stay tuned to our blog in the weeks ahead as we explore the potential implications for players throughout the industry.

(via Fast Casual)

Danny Meyer's Hospitality Included Program Begins

 

In early October, Danny Meyer took the restaurant and hospitality industry by surprise, and announced that he would be getting rid of tips at all of his Union Square Hospitality Group's restaurants, such as, Union Square Cafe, Gramercy Tavern, Blue Smoke and more.

Today, his initiative will officially go into effect. The first restaurant to undergo the change is The Modern, located within the Museum of Modern Art in Midtown, New York City. Meyer hopes to stop accepting tips at the rest of his eateries by the end of next year.

Diners will expect to see increased prices on the menu. For example, lobster sausage, previously priced at $33, will now cost $44. However, customers in actuality won't be paying any more than before, because they no longer will be paying an additional tip. (The menus at The Modern have already been updated with the note: "The Modern is a non-tipping restaurant. Hospitality Included.")

Tipping has always been a hot button issue in the industry, but lately, the tide seems to have shifted towards being tip-free. Joe Crab Shack, a national chain, recently began testing no tipping at 18 of their restaurants. Others that have adopted the gratuity-free policy include, Per Se in New York City, Chez Panisse in Berkeley, Bar Marco in Pittsburgh, and Alinea in Chicago.

The practice has also been picking up in pace due to the growing demands of restaurant workers, especially, back-of-house staff. By dropping tipping, wages potentially will be more evened out across all employees.

Meyer stated in an interview: "We believe hospitality is a team sport, and that it takes an entire team to provide you with the experiences you have come to expect from us. Unfortunately, many of our colleagues—our cooks, reservationists and dishwashers to name a few—aren't able to share in our guests' generosity, even though their contributions are just as vital to the outcome of your experience at one of our restaurants."

See: Danny Meyer Eliminates Tipping from USHG’s Restaurants

(via Zagat)

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How to Retain Your Best Employees

Hiring is a challenge, but so is making your employees happy and having them stay. When you lose your top talent, it disrupts your business' day-to-day operations and hurts your bottom line. You don't want either to happen, so here are some helpful pieces of advice in retaining your best workers:

#1: Listen to feedback from your employees.

Like your customers, your employees are important too. Hear them out and evaluate their commentary. Suggestions from your employees can be beneficial for your business.

#2: Let your staff know about promotions.

Employees want to have stability, a chance to move up in ranks and room for growth. Also, if people think that if they have a future at their workplace, they tend stay onboard longer. If possible, provide on-going training for staff, so the sense of continual learning is instilled.

#3: Reward and incentivize.

When you compensate your employees properly, they will feel more content working. They will be less likely to leave their positions as quickly as well. Give them the opportunity to earn bonuses at the end of the year for producing great service and effort.

#4: Understand work-life balance.

Your staff have lives beyond the restaurant doors. Be understanding and set a manageable schedule. On average, those who work in the industry full-time consider a schedule of working five days, with two consecutive days off, as a good balance.

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Converged Technology Group IDs Eight Ways Video Enhances HR Recruitment Efforts

 

ISLANDIA, N.Y., Oct.  29, 2015 /PRNewswire/ -- When a company hires a new employee, the expectation is that the organization's overall productivity will increase. Locating, interviewing, hiring, onboarding, training and retaining qualified candidates, however, is both time consuming and costly. The goal of today's human resources (HR) professional is, therefore, to find and hire the best available talent and to integrate new employees in a way that moves them from newbies to significant contributors in the most cost-effective and timely way possible. According to Converged Technology Group (www.convergedtechgroup.com), an award-winning Managed Services Partner (MSP) serving clients throughout the Northeast, successful HR professionals have discovered they all have one secret in common, and it's one that propels them – and their organizations – to the front of the race for employee ROI: video collaboration.

"In partnership  with Cisco, we recently held an event focused on the use of video throughout the recruitment process that drew widespread attention from people in a variety of HR roles, including recruiters, learning and development professionals, as well as C-level executives," says Leo E. Galletta, President and CEO, Converged Technology Group. "The event showcased the strategies, capabilities and technologies required to engage the broad spectrum of a multi-generational workforce. During the event, we performed live demonstrations of video collaboration tools, something which all of the attendees said they found to be relevant and extremely valuable. Why did an event focused on the relationship between HR and IT resonate so well among traditionally non-technical line-of-business professionals? Because companies are having very different conversations today about business outcomes and the best ways to recruit, develop and retain top talent – and most have realized that technology is the key."

The ROI of Video Collaboration

Today's HR professionals conduct worldwide searches to fill key positions, and they need the technological tools that can help them do it. To expand their search and attract an increasingly technology-dependent millennial workforce, recruiters must embrace video and use it to its fullest extent to increase their company's return on human capital.  Experts agree that video is quickly becoming an HR pro's most valuable tool: Studies show that video yields 35 percent greater year-over-year improvements in time to hire and 32 percent greater reductions in costs per hire.¹ To help HR, IT and the C-suite see eye-to-eye, Converged Technology Group has identified eight important reasons to embrace video collaboration in the recruitment, development and retention process:

1. It's Personal: Interviewers can more effectively and efficiently pre-screen candidates face-to-face via video than they can over the phone.
2. Putting it all Together: Group interviews are becoming more commonplace, and video allows hiring managers to assemble remote resources to conduct an interview on short notice.
3. Part of the Team: When relocation isn't a possibility, video makes it easier to hire, train and retain remote workers where they are, yet still have them feel like a valued part of the team.
4. Warming Cold Feet: Staying connected with employees in transition by beginning the onboarding process before they arrive keeps new hires engaged from the day the offer goes out until their first day on the job.
5. Anywhere, Anytime Communication: Video allows for instant communication between colleagues, giving new hires a feeling of connectedness from the start that speeds the onboarding process.
6. Experience Matters: The days of using post-it notes and rotary phones to conduct business are gone; tech-savvy millennials expect to work in a connected, digital environment and are actually shopping for employers that offer them the kind of "connected workplace" experience they envision.
7. A Balancing Act: Because the line between work and personal time has blurred, employees want to be equipped with the tools they need to be as productive at home as they would be in the office, giving them the option of building a more flexible schedule and a better work-life balance.
8. Love of Learning: Video helps learning and development managers present training that is more compelling and engaging, something which ultimately translates to better organizational return and employee retention.

¹ Aberdeen Group: "Bridging Distance in the Talent Lifecycle"

More Information:

• Missed the event? Wondering if video is right for your organization? Schedule a consultation with Converged Technology Group to find out: http://ow.ly/TSFkl.
• Productivity-boosting communication and collaboration solutions can help HR recruit, develop and retain top talent more efficiently and cost-effectively than ever before; learn how harnessing the power of video can change the way you do business in five important ways: http://bit.ly/1urB6pT.
• Explore what managed services like Assist360 can do to reduce collaboration support costs: http://ow.ly/urpZz.

About Converged Technology Group

Converged Technology Group is an award-winning Managed Services Partner (MSP) focused on improving IT performance and business outcomes while lowering the cost of technology support for businesses in healthcare, financial services, education, retail, legal and other cutting-edge industries. Located in Islandia, NY, and New York City, Converged Technology Group provides enterprise networking, collaboration, virtualized data center, cloud solutions and managed services to both regional and multinational corporations. The company provides business-critical uptime all the time, and helps clients design, implement and operate their IT infrastructure, communication and computing systems for the greatest return on their IT investments. For more information on Converged Technology Group, please contact us at 631-468-5728 or info@convergedtechgroup.com, and visit our website at www.convergedtechgroup.com.

(via PR Newswire)

Positive Sales Trajectory Has More Room To Run

 

Restaurant sales rose for the eighth consecutive month in September, with total monthly volume jumping $2.4 billion during the 8-month period. Despite the recent gains, a new survey indicates that one-half of consumers are still not patronizing restaurants as often as they would like, according to the NRA’s chief economist Bruce Grindy. His Economist’s Notebook commentary and analysis appears regularly on Restaurant.org and Restaurant TrendMapper.

Restaurant industry sales continued to grow at a steady pace in September, according to preliminary data from the U.S. Census Bureau. Eating and drinking place sales totaled $52.7 billion on a seasonally-adjusted basis in September, which represented a strong 0.7 percent increase over a sales total of $52.3 billion in August.

The solid restaurant sales gain came in the midst of lackluster September job growth and continued trepidation among consumers when it comes to both the economy and their own personal finances.

September represented the eighth consecutive month of restaurant sales growth, with total monthly sales volume increasing by 4.7 percent (or $2.4 billion) during the 8-month period. In contrast, overall retail sales increased 3.1 percent during the last 8 months, while grocery store sales rose by just 1.0 percent.

Despite the recent sales gains, new research indicates that one-half of consumers have yet to get their fill of restaurants. According to a national survey conducted September 24-27 by ORC International for the National Restaurant Association, 48 percent of adults say they are not eating on the premises of restaurants as frequently as they would like. Similarly, 50 percent of consumers say they are not purchasing take-out or delivery as often they would like.

While it’s not surprising that a majority of consumers in lower-income households say they would like to be using restaurants more frequently, it’s worth noting that individuals in higher-income households are also reporting a desire to increase their patronage. In fact, roughly three in 10 consumers in households with income above $75,000 say they are not utilizing either on-premises or off-premises options as often as they would like.

With these higher-income households accounting for nearly six in 10 dollars spent in restaurants, their elevated levels of pent-up demand suggest that the industry’s current positive sales trajectory has a lot more room to run.

(via National Restaurant Association)