How Five Operators Balance Tipping and Service Charges for Equitable Pay

Before David Jackman opened Wildweed in Cincinnati, he knew the menu pricing needed to afford an equitable wage structure. “If I don’t give staff the ability to support themselves,” he says, “they’ll leave the industry or this city.” Jackman had come from Nashville, where he worked at top spots—Catbird Seat, Locust—that compensated staff not with tips, but via service charge. “We had staff retention,” he says. “The cooks could afford to go out and prepare for the next part of their lives.” 

In Cincinnati, he was worried about losing servers who preferred to hustle for tips. What he came up with—a 12-seat, service-charge chef’s counter staffed by cooks, coupled with an à la carte dining room overseen by tipped servers—is a mash-up of two compensation systems at the center of a national debate. With nonprofits like One Fair Wage pushing for service charges and the National Restaurant Association arguing for the tipped status quo, the issue has ended up on ballots and under FTC scrutiny. Restaurant service charges are being conflated with junk fees; advocates are fighting over the tip credit; and customers are balking at paying for services altogether.

The noise around compensation can be overwhelming. “Models are all over the place,” says Cheetie Kumar, owner of Ajja in Raleigh, N.C. “I might not do it like others, so we just need to have that conversation.” 

At Wildweed, cooks earn $15 an hour and share the counter’s 20 percent service charge. Servers get Ohio’s hourly minimum of $10.70, plus tips. An additional 3 percent charge covers health insurance. “The front of house still makes more than the kitchen because most of the structure of their employment hasn’t changed. We found a way to do equity for the back of house without disrupting that,” says Jackman.

Other restaurateurs find it’s worth the disruption to eliminate the inequity. After eight years in business, Portland, Ore.’s Kachka switched from tipping to a 22 percent service charge, using it to pay servers $30 an hour and kitchen staff $25. “We did it to offer higher wages in the kitchen but also in management. People who are trying to run the business can’t do that work if you can’t pay them what they’re worth,” says Co-Owner Bonnie Morales. Recruited to help One Fair Wage lobby for progressive wage policies, Morales also heard testimony from servers throughout the country who reported abuse from diners expressing entitlement because they were tipping. “That hardened my resolve.” 

The transition wasn’t easy. “We saw almost 100 percent turnover in the front of house,” says Morales. “But, since then, we’ve found amazing staff with great retention, and the health and culture of the business is better. As you do more standard wages, you end up with a team more focused on hospitality.” Also helpful: a third of profits are shared among staff.

At Kachka, diners cannot tip, even if they want to. Including a preexisting 5 percent healthcare charge, guests pay 22 percent on top of their bill. Yet, “the shocker is customers not only support it but thank us,” she says. With POS systems like Toast and Square adding tip options to many services, “it’s refreshing to walk into a restaurant, get incredible service, and not think about what that means to you.”

“Our joke is: They come for the labor policy but stay for the pasta,” says Adam Orman, co-owner of Austin’s L’Oca d’Oro, which collects a 20 percent service charge, starting staff at $17 an hour. “We did it because we wanted customers to know the servers and for servers to stay around.” Paid time off, health insurance, monthly set schedules: “We’re trying to get as close to this looking like a real job as possible. Wages were the beginning,” he adds.

Diners are free to tip as well, and tips, which average 5 percent per check, are distributed equally among front and back of house, boosting paychecks an average of $3 per hour. As hourly staff acquire skills, their pay rate increases, maxing out at $24 for cooks. Payroll is a “tremendous cost,” says Orman, especially during slow Texas summers. “But that’s what it’s designed for, to let servers know that even when it’s slow, they have a job that is going to pay them.” The benefit for Orman is high staff retention. In an industry with nearly 80 percent turnover rate, his is almost half that. 

Habituating clientele to a service charge is easier in Austin than elsewhere. Kumar has previously tried a 6 percent charge. “But there was such pushback in this small Southern community.” Still, she says, “it’s important we have equity, and for cooks to feel valued. I want everybody on our team to be rooting for the restaurant, and if it does well, I want everyone to do well.” 

Ajja servers start at $8—slightly higher than North Carolina’s hourly minimum—pool tips with the kitchen, and get 77 percent of their tips back in their paychecks, averaging $35 to $40 an hour. “They could make $90 bartending at a sports bar, but then they’re subject to the alligator pit, harassment, and all those things that happen in a place where you haven’t structured your labor with a team mentality,” Kumar says. “Our guest feedback is that it’s so nice to come back and see the same faces, the vibe is great, the service is awesome, and people seem like they’re not miserable working here.”

Kumar hopes to level the playing field for restaurants that can use a service charge. She has lobbied with the Independent Restaurant Coalition (IRC) in Congress for the Restaurant Service Charge Tax Fairness Act, which would amend the current tax code that treats service charges as revenue, subject to taxation. “What we’re asking for is to eliminate that discrepancy between the way tips and service charges are treated,” she says, so restaurateurs can choose their model without being penalized. 

The November 2024 election showed how difficult it can be to change the industry through legislative or electoral means. Question 5 on the Massachusetts ballot would have increased the state’s $6.75 tipped minimum over five years to $15, the state’s minimum wage. Until the end of 2028, it would have retained the tip credit in which, if a tipped worker’s wage plus tips do not equal $15 an hour, the employer makes up the difference. And it would have expanded tip pooling. The measure failed. 

Eli Feldman, co-founder of Boston’s Shy Bird, opposed it. “The tip system is deeply flawed, but Question 5 didn’t work,” he says. Restaurants would have had to raise prices to cover the increased wages, and studies have shown, he argues, that increased prices lowers demand. Restaurateurs would have had to let staff go, hurting service. A similar ordinance is in effect in Washington, D.C., and Feldman predicts the beneficiaries will be corporate chains, as independent restaurants are driven out of business.

“I would have supported a straight minimum wage increase to $25 an hour in Massachusetts that would have affected all levels of employment,” says Feldman, who runs his restaurant on a traditional tip model, with an additional 4 percent service charge for higher wages to back of house. “Any entry-level job in an urban environment needs to pay a livable wage, and we have to figure it out cooperatively.” For Feldman, the solution includes housing and immigration reforms, so all restaurant workers can afford to live in the cities where they work.

To that end, Orman advocates for a higher federal minimum. Unchanged since 2009, the longest stasis in nearly a century, minimum wage is $7.25 an hour for non-tipped workers and $2.13 for tipped workers. Every year since 2017, the Raise the Wage Act has floundered in Congress. If passed, it would gradually raise minimum wage for all workers to $17 an hour. The National Restaurant Association opposes it, arguing that small businesses can’t afford it. But restaurateurs like Orman favor it. “That’s what I want,” he says. “Proper, guaranteed income and guests who aren’t confused.”

Betsy Andrews is a James Beard Award-winning writer based in New York.