Tipping | KRG Hospitality

Closeup shot of the flag of the City of Chicago with Wrigley Building in background

October 16, 2023by David Klemt David Klemt No Comments

Chicago to Phase Out the Tip Credit

Chicago to Phase Out the Tip Credit

by David Klemt

In a move that some are celebrating and others claim will kill jobs, Chicago will phase out the tip credit incrementally by the year 2028.

Currently, pay for tipped workers amounts to 60 percent of the minimum wage. Starting next year, that will change.

Beginning July 1, 2024, tipped workers will earn eight-percent increases on an annual basis. This will continue until July 1, 2028. On that date, tipped workers must receive the full minimum wage.

Put another way, the city of Chicago will eliminate the tip credit entirely midway through 2028. To add clarification, this phasing out of the tax credit applies to all 77 of the city’s neighborhoods.

Overwhelmingly, Chicago’s City Council voted for the so-called “One Fair Wage Ordinance.” Thirty-six alderpeople voted “yea,” while just ten voted “nay.”

As one would expect, not everyone is happy that the ordinance was passed on Friday, October 6. Nor are they pleased that Mayor Brandon Johnson signed off on the bill a week ago today.

Specifically, Alderman Nicholas Sposato referred to the One Fair Wage Ordinance as a “job and business killer.”

Further, as reported by Restaurant Dive last week, the Illinois Restaurant Association opposes the decision to eliminate the tip credit in Chicago.

“We wholeheartedly disagree with the decision to move forward with the elimination of the tip credit,” Restaurant Dive reports a representative of the IRA saying in a statement emailed to the publication.

The National Restaurant Association also opposes the ordinance, reportedly vowing to fight any such legislation that introduced throughout the country.

However, One Fair Wage and the Service Employees International Union are celebrating the plan to phase out the tip credit. However, the SEIU would like the elimination to apply statewide.

A Compromise

Attempting to negotiate for legislation they found more palatable, the IRA had proposed a different approach.

Their version would have seen tipped workers make a minimum of $20.54 per hour. However, that ordinance would only have applied to restaurants that generate $3 million or more in annual revenue. Additionally, the IRA proposed tripling fines related to violations of the proposed ordinance.

Had that proposal been accepted, the pay situation would have been unchanged for tipped workers in smaller operations.

In the end, the IRA agreed to eliminating the tip credit over the course of five years to make the transition smoother for operators. This is due, in part, to the possibility of a two-year phasing out of the tip credit being passed by Chicago’s City Council.

The IRA, NRA, and others who oppose eliminating tip credits point to hardships on the operator side. Increased labor costs will lead to increases in menu prices, reductions in traffic and hours, the elimination of jobs, and, ultimately, the shuttering of many businesses.

However, those who support such ordinance point to the financial stability of vulnerable people, and those who work throughout the industry to earn a living wage.

The Future

While Chicago is the largest city in America to vote to eliminate the tip credit, it’s not the first pass such legislation.

The city joins Alaska, California, Minnesota, Montana, Nevada, and Oregon in doing so. Additionally, Washington, DC, will eliminate the tip credit fully by July 1, 2027. Phase one of DC’s tip credit elimination started May 1 of this year.

Of course, the news out of Chicago also comes on the heels of the FAST Act fight ending in California.

These developments beg the question: Which city or state will introduce legislation next, and how will it play out for workers and operators?

Image: Trace Hudson via Pexels

Barbecue chicken wings, chili peppers, and chili flakes

August 15, 2023by David Klemt David Klemt No Comments

Top-performing Menu Items in the US

Top-performing Menu Items in the US (So Far)

by David Klemt

Thanks to a recent mid-year report from F&B intelligence platform Datassential, we now know the top-performing menu items in the US.

For the low, low price of filling out a handful of fields, you can download a copy of Datassential’s “Foodbytes: 2023 Midyear Trend Report” for yourself.

There’s plenty of useful data packed into this short report. You may find some of the top food items a bit surprising.

But First…

Datassential does more than just list the top mid-year menu performers in their latest report. There are also a couple of interesting datapoints for operators to consider.

The first piece of information is an alarming statistic: 54 percent of consumers are of the belief that “tipping culture has gotten out of control.”

As we’ve reported earlier, it’s likely that a major driver of “tip fatigue” comes from retail. The expectation for consumers to tip at a restaurant, bar or nightclub is ingrained deeply in American culture.

However, consumers throughout America are being prompted to tip after just about every transaction they’re attempting to complete. In fact, it’s not just retail that has been encouraging (in some cases, guilting) people to tip. Some contractors are also adding tip lines when handing over tablets to clients so they can pay their invoices.

One result is that servers and bartenders are reporting lower tips; guests are so over tipping that they’re pushing back against the practice in venues where they’d traditionally have no problem doing so.

Of course, tip fatigue isn’t the only reason consumers are pushing back against tipping. Many people feel that operators should increase what they pay staff. Indeed, some people feel that operators are asking them to subsidize their employee pay. Whether they’d be happy to pay higher prices remains to be seen.

Fads Aren’t Bad?

Whenever we cover trends or discuss them with clients, we caution against chasing too many (or the “wrong” trends). And fads? It can be even riskier to hop on the bandwagon of something that may never even reach the trend stage of its lifecycle.

However, likely due to the ubiquity of TikTok, consumers expect restaurants to embrace fads. According to Datassential, 67 percent of consumers overall “want to see more fads at restaurants and retail.”

That number jumps to 74 percent when focusing on Millennials and Gen Z.

So, while we still caution operators about jumping on fads (or “micro trends”) and trends, that doesn’t mean be too cautious. If a fad or trend works with your brand and won’t cost much to feature, at least give it consideration.

Not sure you’re great at identifying fads that will work for your business? Ask your staff which fads and trends are hot at the moment.

Speaking of Hot…

Alright, let’s take a look at the F&B items Datassential identifies as popular at the midway point of 2023.

Again, I encourage you to download the report in its entirety. You can do just that by clicking here.

But for those who want instant gratification, check out these menu items:

Super Duper: Let’s kick things off with the hottest chain LTO, the Denny’s Super Slam. Per Datassential, restaurant chains have already featured in excess of 2,000 LTOs in 2023. The F&B intel agency tests them all, and the Super Slam is wearing the LTO crown at the moment.
Chef Chatbot: Datassential tapped ChatGPT to create a burger recipe and had Midjourney create an image for the resulting Caprese Avocado Burger. More than half of consumers surveyed—57 percent—want to try it at a restaurant.
Big Winner: Datassential asked consumers a simple question: Which would you rather eat for the rest of your life, a hamburger or a hot dog? A staggering 87 percent chose hamburgers, meaning just 13 percent of consumers would choose a hot dog over it’s burger buddy.
What a Pickle: Back in March we checked out Slice’s Slice of the Union report, and it predicted pickle pizzas would be a hot trend this year. Well, Datassential has crunched the numbers and says 40 percent of consumers are aware of this pizza style already. Looks like Slice may be proven right by the end of the year.
Speed Demon: Curious about the fastest-growing menu item on the US? Well, wonder no more: Datassential says it’s the barbecue chicken wing. Over the past year, they’ve grown 373 percent on menus across the States. Datassential posits the overall growth of chicken and the embracing of flavor trends like Carolina gold barbecue sauce are contributing factors.

There’s a lot to unpack here, so I’ll leave you to it. Just remember that when it comes to fads and trends, there’s a fine line between what’s hot, what’s not, and jumping on the wrong one. Good luck!

Image: Ahmed Bhutta on Pexels

March 21, 2023by David Klemt David Klemt No Comments

IRS Proposes New Tip Reporting Program

IRS Proposes New Tip Reporting Program

by David Klemt

The Internal Revenue Service is proposing a voluntary tip reporting program which they’re calling the Service Industry Tip Compliance Agreement (SITCA).

Making the announcement via Notice 2023-13 back in February, the IRS is giving people the chance to comment on the SITCA proposal.

Per the IRS, their intention is to “take advantage of advancements” in POS, scheduling, and e-payment technology. How do they intend to leverage all this tech? In short, the IRS is proposing that POS systems will have to process payments and tips in the same way.

To clarify further, if someone pays by credit card, they’ll have to tip via credit card. If a guest pays in cash, they’ll have to tip in cash. So, should SITCA become the industry standard, the days of paying with a credit card but leaving a cash tip will be over.

However, in my eyes, this isn’t a simple “modernization” of IRS processes.

If the IRS is proposing a new for businesses to process tips, they’re looking to catch non-compliant businesses and tipped workers. A likely culprit or contributing factor to this IRS scrutiny? The retail venues now asking for or suggesting tips when customers check out.

So, it would be wise to reiterate to your team the need to report tips accurately. And remember, business owners need to ensure they’re complying with tip reporting as well. Getting flagged for inaccurate reporting is a great way to catch an audit, penalties, and a huge bill.

Nuts and Bolts

According to the IRS, SITCA will reduce taxpayer burdens. And, of course, the service claims the program will also reduce their own administrative costs.

Additional “features,” per the IRS website, are as follows:

The monitoring of employer compliance based on actual annual tip revenue and charge tip data from their point-of-sale system. There will be allowance for adjustments in tipping practices from year to year.
Participating employers demonstrate compliance with the program requirements by submitting an annual report after the close of the calendar year. This reduces the need for compliance reviews by the IRS.
Employers participating in SITCA will receive protection from liability under the rules that define tips as part of an employee’s pay for calendar years in which they remain compliant with program requirements.
Participating employers have flexibility to implement employee tip reporting policies best suited for their employees and business model. Policies must be in accordance with the section of the tax law that requires employees to report tips to their employers.

Requests for Comment

Interestingly, Notice 2023-13 contains a request for comments in four specific areas:

By what means a technology-based time and attendance system may be used by tipped employees to report tips. This includes tips in cash and other forms of tipping made through electronic payments methods (other than a credit card), regardless of whether the tips are received directly from customers or through tip sharing arrangements.
How tip sharing practices vary across service industries and how the SITCA program can support employer participation while accommodating potential differences in Federal, state, and local labor and employment law requirements.
By what methods employers of large food or beverage establishments participating in the SITCA program may meet their filing and reporting obligations under section 6053(c) and also satisfy the SITCA program requirements for compliance, while minimizing the administrative burdens on taxpayers and the IRS.

Those interested in providing such feedback have until May 7, 2023 to do so. The IRS has set up two ways to provide comments on Notice 2023-13:

Mail: CC:PA:LPD:PR (Notice 2023-13), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044; or
Electronic: Visit the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and Notice 2023-13) and follow the instructions for comment submission.

Personally, I have more questions than comments. Bear in mind, the IRS will stop accepting comments, feedback, and questions on May 7, 2023.

Image: Jon Tyson on Unsplash

January 17, 2023by David Klemt David Klemt No Comments

American Trends 2023: Technomic

American Trends 2023: Technomic

by David Klemt

Foodservice research firm Technomic has some interesting predictions for the hospitality industry in the United States of America this year.

On the topic of operations, Technomic foresees more negotiating power among workers. Additionally, the firm looks at both the economy and pent-up guest demand.

When it comes to food, the US and Canada have a trend prediction in common. And as the image atop this article signifies, a particular color may be a hit on menus in 2023.

Before we jump in, Technomic’s 2023 Canadian trend predictions are here. Last year’s Technomic predictions for America are here. Curious readers can review the firm’s 2023 predictions in their entirety here.

Okay, let’s go!

Think Pink

I want to address this prediction first. According to Technomic, pink is going to be the F&B color of 2023.

As they explain, the color is fun, nostalgic, and photogenic. Yes, operators must still consider the Instagram-worthiness of their menu items. That may change one day, but it’s not today.

Per Technomic, pink also signals that a food or drink may have antioxidants.

Some of the items the research firm names specifically: pink pineapple, pink salt, pink celery, cara cara oranges, and schisandra berries.

Pickle It

This is the culinary trend that, per Technomic, Canada and America will share in 2023.

Along with fermenting, pickling gives the kitchen and bar teams a unique experimentation method to explore. So, encourage these teams to get creative and add pickling and fermentation to your next menu update.

Of course, that’s not the only reason to consider putting pickling front and center. For many, these preparations indicate a healthy F&B choice. Think kombucha, as an example.

As we know, healthy choices continue to be top of mind for many guests.

One more note: Technomic suggests being transparent and identifying the pickling and fermenting processes your team leverages to produce each menu item.

Economics

For those looking for a bit of optimism in these trying times, Technomic may have what you’re looking for. This year’s report, What We Foresee for 2023, says the following about the possibility of a recession:

“There is reason for optimism in the coming year, however, as any recession is expected to be relatively mild.”

Yes, that’s just one source’s opinion. However, Technomic is known for their voraciousness when it comes to data. So, if this firm is optimistic it could be a solid sign that things are looking up in 2023.

“Pent-up consumer demand” and variations thereof have been making the rounds since 2o21. However, it’s still a relevant phrase.

As it pertains to 2023, Technomic believes on-premise dining may “bounce back” this year. In fact, the firm suggests that people want to socialize and dine in person now more than ever.

Also, delivery and pickup times appear to be growing. So, plenty of people will see in-person dining as the more appealing option in 2023.

Operations

In part due to legislation addressing minimum wage and workplace conditions, employees may have the upper hand this year.

Add the fact that many people seeking work know many operators are dealing with a labor shortage and their negotiating position looks even stronger.

So, we could finally be in for a significant change when it comes to how the industry looks at compensation. More and more workers—and the guests they serve—are taking issue with tipping. Instead, many people outside and inside of the industry want to see operators pay staff a competitive, living wage.

Of course, there are also the hospitality professionals who prefer tips to minimum wage. In 2023, the industry could experience the start of a sea change. Time will tell.

For more predictions and this Technomic report in its entirety, please click here.

Image: Alex Gruber on Unsplash

November 7, 2022by David Klemt David Klemt No Comments

Tipping is on the Ballot in Washington, DC

Tipping is on the Ballot in Washington, DC

by David Klemt

Out of concern that people who work for tips aren’t making minimum wage in Washington, DC, Initiative 82 is on the ballot.

This is interesting for several reasons. One of which is the fact this isn’t the first time this issue has been voted on in DC.

Back in 2018, Initiative 77 was presented to Washington, DC, voters. The initiative took the $3.33 per hour minimum wage for tipped workers up to $15 per hour, the full minimum wage.

In June 2018, the measure was approved by voters. However, the Washington, DC, Council held a vote and repealed Initiative 77 after if had been passed.

Phil Mendelson (D-Chairman) of the Washington, DC, Council, introduced the bill that ultimately repealed Initiative 77 in October 2018.

“The Council amends laws all the time. And if a law is a bad law it should be amended or repealed,” said Mendelson at the time. “It doesn’t matter if the law was adopted by Congress, the voters, or ourselves.”

Further, Mendelson claimed that tipped workers themselves—bartenders, servers, valets, manicurists, and more—didn’t hold a favorable view of the passing of the initiative.

“77 may be well-intentioned, but the very people the Initiative is intended to help are overwhelmingly opposed. If we want to help workers – protect them from harassment and exploitation – there are better ways than Initiative 77,” Mendelson said.

One council member, Mary Cheh (D-Ward 3), opposed repealing Initiative 77 and addressed claims that it was harmful to tipped workers.

“Although I take these claims seriously, in my view they are speculative and not borne out by the experience of the other jurisdictions that have one wage,” said Cheh.

Support

Whenever increasing tipped worker wages to full minimum wage comes up, we tend to encounter the same arguments for and against.

Currently, the tipped hourly wage in DC is $5.35 per hour. In comparison, full minimum wage in DC is $16.10 per hour.

Now, as the law reads, if a tipped worker’s wages don’t equate to full minimum wage, their employer is expected to bridge the gap.

The key argument for the passing of Initiative 82 is simple: tipped workers should make at least minimum wage. These workers deserve the stability of knowing how much they’ll make each shift and earning a living wage (consistently, hopefully).

Those who support Initiative 82 also say that since the measure doesn’t outlaw tipping, tipped workers would earn more than minimum wage.

Opposition

Opponents, however, argue that the initiative will harm tipped workers. Some say that operators will cut shifts and increase prices in response to Initiative 82 passing. This will, of course, lead to servers, bartenders, and other tipped workers making much less than they did in the past.

Traffic may also decrease because it’s assumed that operators will increase costs significantly.

There’s also the argument that’s often (if not always) made when this topic comes up: Tipped workers themselves don’t support these initiatives.

“I have not met a single server who wants this,” Washington, DC, bar owner David Perruzza told the Washington Blade. Perruzza added, “The people who support this don’t know anything about the service industry.”

A Few Questions…

I’ve made no secret of my cynicism when it comes to politicians and their relationships with our industry.

My main argument was made for me: the Restaurant Revitalization Fund saga. We watched for months as Congress failed to replenish the RRF, leaving more than 177,000 operators and their staffs to fend for themselves. This, after months of dangling replenishment in front of all of us. Ultimately, they abandoned us.

Tellingly, Senator Rand Paul (R-KY) referred to RRF replenishment as a “bailout.” And apparently he doesn’t think much of the challenges operators have faced since the start of the pandemic, asking, “Where’s the emergency?” The closures of tens of thousands of restaurants and bars, often the cornerstones of communities across the country, doesn’t rank as an emergency, apparently.

So, Initiative 77, Initiative 82, and similar measures beg a few questions:

Do politicians actually ask their tipped-wage constituents their thoughts on this topic before introducing these ballot measures?
When these initiatives are being considered, do people just ask a few operator friends their opinions?
Do local, state, and federal politicians really have a grasp of our industry?

One thing is certain: Industry eyes across the country are on Initiative 82. If it passes, we can likely expect similar measures to be introduced in cities and states. Should it fail, it may be a while before another jurisdiction sees this type of initiative again.

Image: Annie Spratt on Unsplash

June 9, 2021by David Klemt David Klemt No Comments

Tip Elimination is Back on the Table

Tip Elimination is Back on the Table

by David Klemt

Several operators across the country feel that as we emerge from pandemic life, now is the time to once again try eliminating tips.

Back in 2015, Danny Meyer made a decision about tips in his restaurants that sent shockwaves through the industry. Over the course of five years, Union Square Hospitality Group (Meyer’s group) implemented a hospitality included policy to eliminate tipping.

To be sure, it wasn’t only Meyer’s restaurants that examined and put no-tipping policies in place. However, Union Square was certainly among the highest-profile operators to try it out.

Good Intentions

Per the CEO of Union Square and founder of Shake Shack, attempting to do away with tipping was about promoting equity in the hospitality.

Tipping has been linked to the propagation of sexism, racism, harassment, and exploitation.

Meyer has also said that he believes it leads to wage instability, and studies have shown it contributes to outright wage theft. And, as anyone who has worked in a restaurant knows, tipping can create a gap—and therefore tension, among other issues—between the front of house and back.

However, it has proven difficult to for no-tipping policies to take hold. This is in part because tipping is so ingrained in American society. And, of course, there’s also the issue of increasing menu prices; some people are fine with tipping but not with paying more for menu items.

Guests aren’t the only individuals who have pushed back against eliminating tips. Unsurprisingly, the very people Meyers and other operators are trying to help have rejected no-tipping policies.

Many servers and other FoH staff have made it clear that they’re not interested in working for an operator who eliminates tips.

Reinstatement of Tipping

Around eleven months ago, Meyer announced he would reverse course on his hospitality included policy. According to reporting, Meyer had done so not because of pushback against increased menu prices (about 15 to 20 percent to cover increased labor costs).

Rather, the five-year experiment never worked exactly as Meyer and Union Square had hoped. As he told Pulitzer Prize-winning journalist Jonathan Capehart during a Washington Post Live conversation back in March of this year, the policy wasn’t sustainable.

“It worked to a degree, but it was not sustainable, and the biggest reason it wasn’t sustainable was we could never quite do all the things we wanted to do for our team members like make sure that a formerly tipped employee could make as much as she made when she was tipped, make sure that we had a 401(k) plan, make sure we had a really, really generous family leave policy,” Meyer told Capehart.

And then there was the impact of the pandemic. Meyer finally pulled the plug on his no-tipping policy after New York allowed restaurants to reopen for outdoor dining a year ago. Reportedly, Meyer didn’t see how he could stand in the way of his staff making additional money.

2021 Experiment

Interestingly, several news outlets are reporting that operators around the country are at least considering doing away with tips this summer.

Again, this is at least in part due to the pandemic. Restaurateurs who have wanted to implement policies similar to Meyers’ Hospitality Included see this year as the time to try.

We still don’t know exactly what post-pandemic life will be. However, a hospitality industry reset is certainly coming—and it’s absolutely overdue.

So, it does make sense that as operators can change guest and staff perception of tipping and living wages as we all emerge from pandemic life and face a new world.

For example, the Chicago Tribune has reported that Big Jones, owned and operated by Paul Fehribach, has implemented service fees so he can cover offer servers between $18 and $25 per hour. A 20-percent fee for in-person dining or placing an order with a live person, and a 10-percent fee attached to online orders go to Big Jones payroll.

While there has been some pushback, the Chicago Tribune reports that Fehriback says Big Jones reactions are trending toward the positive.

It’s possible that tip elimination simply doesn’t work for some restaurant categories. As an example, those policies may work out in the casual dining space but not fine dining. Time will tell if it works at all.

Image: Sharon McCutcheon on Unsplash