Tip-sharing rules change could be controversial in Hawaii

That $5 tip you leave at the table after a restaurant meal might seem like just a little bit extra, but for wait staff and restaurant owners, the tips from diners like you add up to some serious income — and lots of controversy.

Hawaii restaurant owners are waiting with bated breath for the expected rescission of a federal rule that regulates tip pooling, a sharing of tips given to front-of-house staff with back-of-house workers. Front-of-house is defined as those who interact with customers, such as waiters, busers and runners; back-of-house includes cooks and dishwashers.

A current U.S. Department of Labor statute prohibits restaurant owners from requiring that tipped employees share those earnings with back-of-the-house staff.

The issue is a complicated one involving the minimum wage and equitable pay among employees. In most restaurants, servers earn minimum wage plus tips, while most kitchen workers are paid more than minimum wage. The current U.S. minimum wage is $7.25 an hour; in Hawaii it’s $9.25, going up next year to $10.10. Restaurant owners say that with tips, most servers make an average of at least $35 an hour.

“Servers are often the highest-paid wage earners in a restaurant. They earn more than even managers,” said Tom Jones, president and founder of Gyotaku restaurants. “And they automatically get a pay increase when the minimum wage goes up. This puts me at a disadvantage to give pay increases to the back of the house.”

Kitchen workers contribute to the customer experience, said Gregg Fraser, executive director of the Hawaii Restaurant Association and owner of Opakapaka Grill and Bar in Hanalei, Kauai.

“They work hard to get meals out timely and hot so the guest has a favorable experience, which increases the likelihood of a tip for the server. It’s about the quality of food and level of service,” said Fraser. “A tip is based on the overall experience, and the back of the house is an integral part of that experience. They are responsible, too, for that gratuity.”

Shared tips would even up the pay disparity and still allow wait staff to make well beyond their base hourly pay, say restaurant owners.

But Rachael Mau-Robotti, a server at IHOP Waikiki, said that’s not always the case.

“It varies,” she said of her tips. “If we’re busy, most of the time we end up making more than the cooks, but not always.”

Many of the restaurant’s wait staff voluntarily share tips with co-workers who make minimum wage, such as busers and dishwashers, she said.

Still, “I’m glad we don’t pool tips. It’s easier for each of us to work for ourselves,” she said.

MAKING UP THE DIFFERENCE

At the heart of the issue is the tip credit, a federal law that allows employers to pay tipped employees less than the federal minimum wage. The premise is that tips earned will make up the difference.

Nationally, employers can pay as little as $2.13 hourly and take a tip credit of $5.12, as long as employees earn back the $5.12, plus an additional $30 monthly, in tips. In Hawaii the maximum tip credit is 75 cents, meaning an employer can pay no less than 75 cents below minimum wage (or $8.50 hourly), and only if the employee averages at least $7.75 an hour in tips. A tipped employee’s total income — wages and tips combined — must total $16.25 hourly. Next year that goes up to $17.10, based on a $9.35 hourly wage.

Once employers take a tip credit, they are not allowed to pool tips, even if the federal rule is rescinded.

Since Hawaii’s tip credit is so small, few restaurant owners take it, making the rescission of the tip-pooling statute something they are closely watching.

“Since the 1990s, the federal Department of Labor has interpreted the statute to regulate pools even if the tip credit is not taken by the employer,” said Clayton Kamiya, president of the Hawaii Employers Council.

“The department is saying it believes tips are the property of the employee, so if employers are using tips to raise the wages of the kitchen staff, that’s illegal.”

At the same time, owners must pay FICA tax (which supports Social Security and Medicare) on reported tips, said Gyotaku’s Jones.

THE HIGHWAY INN SOLUTION

Restaurant owners say that if the tip credit in Hawaii were more substantial, they could better afford raising wages for the kitchen.

“The theory is that the 75-cent credit goes to the back of the house. But that’s nothing — $7.50 for 10 hours of work,” said Russell Ryan, chief commercial officer at Highway Inn.

“For the last 30 years, I’ve testified at the Legislature that every time they raise the minimum wage, they should raise the tip credit,” said Jones. “Some folks say that restaurant owners wouldn’t pass on the money from a tip credit to staff, but most of us would.”

Without a tip credit or tip pooling, owners say rising costs will be reflected in menu prices.

In response to the statute, Highway Inn, with locations in Kakaako and Waipahu, has instituted a 5-percent kitchen service charge that’s added to every dining bill. Income from the charge is divided among back-of-house staff. An explanation on the bill recommends that, because of this charge, customers reduce their tip to servers by 5 percent.

“It was the work-around we established to be legal and address all employees,” said Ryan. “We developed it from scratch and then found that others were doing the same thing around the nation. It’s common in other places. Some restaurants even have a health care charge. By law, we must declare what we’re doing.”

The restaurant pays out the service charge to employees monthly based on hours worked.

Davin Quinones, a line cook at Highway Inn, says that extra money makes a difference.

“I’m a single parent, and it helps out a little more … with things like school supplies,” he said.

Highway Inn server Kenae Prevost said she doesn’t mind the reduction in her gratuity on behalf of the kitchen staff.

“The back of the house works hard too,” she said. “They come in earlier than us and work later than us. They do prep and cleanup. And it’s extremely hot by the stove, and they have to stand there six or seven hours.

“In general, servers here don’t have trouble sharing,” Prevost said. She sees it as in keeping with the way Highway Inn’s original owners would feed people in the neighborhood even if they couldn’t pay. “That spirit is still alive here.”

CATALYST FOR CONFLICT

Landan Tolentino, a server at Arancino de Mare in Waikiki, says he sees the benefit of tip sharing — “It could promote better teamwork” — and servers at his restaurant do sometimes share tips with other front-of-house workers such as runners and busers.

But he also thinks if the practice were required it could cause conflicts among workers.

The kitchen staff is already paid more per hour than servers, he said, and their roles are different.

“We deliver customer service, and tipping is correlated with that. We have different jobs and different skill sets.”

If a diner isn’t happy with their food, for instance, it’s the server’s job to use their customer-service skills to ensure that the customer leaves happy, Tolentino said.

“We’re the face of the company.”