Tip Credit & Labor Solutions

Sep 17

Published Sept. 17, 2025. This is a compilation of coachings and previous opinion pieces of my own, synthesized here.

Problem

There’s no doubt you have noticed the One Fair Wage Ordinance [1] and its removal of the tip credit. It’s probably affected you as an SMB in very different ways than what is being described in articles and news stories.

Pieces abound on the impacts to all restaurants may not realize the extent to which this persistent wage increase has inflated training budgets and turnover losses, in addition to the steady ballooning of labor costs. [2,3,4]

Back in 2014 my DOP (Director of Ops) often talked with me about the economy of adding servers to the floor and playing politics with cuts and schedules to maximize hands on and dollar intake from the sales floor. This no longer applies to Medium size businesses in 2025; oddly enough it never really applied to many of the Mom & Pop Shops I have worked with because they never have enough hands on the floor.

This is a glaring difference overlooked by many offering “operational solutions” to this problem. Small organizations of 10 people with 3 on the floor per night don’t have the option to cross train, broaden responsibilities, nor the revenue to take on higher costs/shift. The owner or manager is already prepping, hosting and bussing tables. The lead server is washing dishes, doing take out orders and helps with liquor inventory.

Medium orgs have a little more leeway, but no doubt are hurting from training & retention. Especially considering seasonal rhythms that need the extra hands to provide their Standard of Service. Wherein Mom & Pops are offered patience for being a three man show, Medium orgs are decidedly measured against corporate restaurants with little empathy.

So, what do we do?

There’s a lot of responses & what seems to work for the industry might be rubbing customers the wrong way. My next post will talk about “The Diminishing Value” in more depth but a lot of customers are seeing fatigue. Tip Fatigue, cost fatigue, fee fatigue, there seems to be no end to what’s tiring many on review platforms and social media. [5]

Service fees. Staff cuts. Price changes; these are the big three answers being deployed in the industry. Between economics and cultural changes in younger generations, there seems to be a call for the end of tipping, all in one pricing and changes in service expectations. Or is there?

Consumer decision making is volatile and obscure. This may seem counter intuitive but if you ever find yourself talking to an economist, ask them about consumer rationale and order a drink, you’ll need it. The public cries to raise prices or offer an all inclusive cost results in what I like to call, Swiss pricing. Your burger, fries and soft drink is now $35, downtown. Consumers just won’t do it, despite their insistence. Worse, you might need to implement table minimums, sit time limits or, lower expectations of service. Casual diners may be charmed by “European Service” on vacation but that’s because they are on vacation. Living in South America part time I can tell you that slow service everywhere you go is infuriating.

Service Fees are seeing push back, but when done right I think they are a reasonable solution [6]. A trial period for your restaurant should be on the table. Clear, pinned posts on social media, your website, and your menu should alert guests to what you’re charging and why. Servers should have scripts prepared for it when dropping menus.

“There is an x% service charge on your check to supplement labor costs for staff and provide XYZ perks. This separate charge is removable on request and helps simplify our bookkeeping.”

I cannot emphasize enough the effect transparency and signaling in all places helps your cause. Customers tend to follow the logic when they see it, and tend to get upset when it’s a “surprise” line item. I know your sign at the door covers you legally, but when no one reads it, you lose control of customer outcomes. You have to message everywhere, even on your menu.

Obligatory, not legal advice, nor is the above message intended to be used as anything other than an educational example for communication of legal fees at your own risk & compliance.

Alternative Solutions

The above levers all have labeled, critical limits. The creative solutions are much better than any of the one size fits all recommendations of Magazine Monthly. This bulleted list has elaboration below.

Revenue center changes, particularly in beverage
Changes in Steps of Service
Clear and total use of your USP
Refine hiring and training pipelines
Optimization of dead space

#1. Revenue center changes: If you pay for a liquor license you should be using it to its fullest. Booze can account for up to 40% of revenue and up to 70% of profits [7]. How? Running successful cocktail programs is a talent, and a profitable one. A master mixologist can craft a program that displaces some labor dollars and some mix time during service into expensive drinks people won’t stop ordering or regular price drinks that pull in high margin. Beyond expertise this also takes labor hours, and coordination with your menu. You need to have drinks that fulfill the expectations but arrive timely when made at scale.

Wine and beer live here too. These products need more research and deployment. Many customers have access to the wines and their ratings right on their phone, so obviously they know when you’re overcharging. This comes in exchange for being ready made, consistent and socially valuable brand names. These require staff training and good vendors to go outside of the norms or zero in on niche products your customers will pay to have delivered to their table, label facing their excited friends and guests.

Finally, if you’re BYOB you need to read this too. You should know each liquor store near you, what they carry and find a way to partner with the best of them. Get pairings listed on your menu or on note cards for servers. People will love the guidance and let's face it. People who drink a few are more likely to tip better and spend more money. Forge partnerships and great community relations and reap the rewards of word of mouth.

#2. Changes in steps of service: You may read between the lines on this and call it staff cuts by another name. For any size restaurant I just don’t see the point in having a busser on when I can have another server. There’s going to be tension about section sizes and shifts. But, paring down to your strongest staff and elevating your standards is the best recourse.

At most, Medium orgs will still have green and training staff take bussing shifts on the highest volume services, especially with large seat counts. More precise shift scheduling and hourly modeling of demand will likely change rush shifts from long day affairs to short shifts just before the start of chaos and leaving when doors close.

#3. Clear and total use of your USP: Unique selling point is getting out of hand with some owners. Vegan, pacifist, South Atlantic, Non Alcoholic, co-working Bungalows build a USP through what they market themselves as. SMBs have a USP based more in what they offer the community. If you’re a 24 hour Mexican restaurant, you offer good food, 24 hours a day. This is your USP vs the Polish place, the banquet center and the halal pizza spot. If there are 5 stores nearby like yours, you know your al pastor is king. Maybe it’s your margarita brunches on the weekend.

You need to be maximizing your return on your USP. This does not mean raise prices, cut 2/3rds of your menu or dilute revenue with specials. It means examine your sales mix, look at your prep process. Examine breakpoints on orders. Find compliments to support your USP and make it easy to order, make it as fast as possible to expo. Make your best thing better and you can’t lose. Engineer your menu around your star and watch people participate.

#4. Refine hiring & training pipelines: This already painful sector is becoming more so. You need robust systems in place to get active players in the game as quickly as possible. Train them to sell & support your concept and then keep and develop their talent. This means writing manuals, recipes, enforcing standards. If you don’t do all of these tedious and time consuming things, your standards don’t exist. Subsequently neither do your quality or cost controls. Finding the time to document training or rework it with a 60+ hour work week is one of the reasons I offer it as a service.

#5. Optimization of dead space: A key sales objective is turn things that may normally seem unattractive into something irresistible. Turn that rail or counter top seating, which is a last resort for customers on busy days, into quick service and no tip zones. Incentivizing the lowest use seats concentrates efforts and guest expectations, keeps bad tippers away from the general service floor and keeps the bar seats open for better spenders.

Food runners can pay for themselves during a shift by maintaining a small zone of these “low attraction seats” via automated ordering. With QR codes and hosts informing guests of the deal you create value where there was once avoidance. Plus you can tailor these QR menus to be quick options that are easiest to prepare and serve.

Sources & further reading

Mason Sane

Tip Credit & Labor Solutions

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Sane Restaurant Consulting