Changes to servers’ wages could hurt restaurants in New York state

By Liz Young  –  Reporter, Albany Business Review

Dec 20, 2017, 2:23pm

Albany Business Review 

Gov. Andrew Cuomo has alarmed restaurant owners as he calls for New York to look at eliminating tipped wages in his upcoming State of the State address.

Restaurants could eliminate tipping, and some may close, if a change is made to the way servers’ wages are paid in New York state, industry executives say.

If it does go through, it’s going to force us to pay a high hourly rate to everybody,” including kitchen staff and others, said Brad Rosenstein, owner of Jack’s Oyster House in downtown Albany. “It really abominates the restaurant industry. You’ll see so many less restaurants and so many less positions and then it’ll probably get more costly for people to go and dine out.” 

Cuomo is directing the state’s labor commissioner to look at the possibility of ending minimum wage tip credits.

Food service workers who earn tips are paid $7.50 an hour by their employer. The employers are then required to pay workers the difference up to minimum wage if tips don’t get them there.

The minimum wage in upstate New York is $9.70 per hour. It rises to $10.40 on Dec. 31.

The base wage for tipped food service workers rose to $7.50 at the end of 2015 from $5 an hour. When that happened, the 50 percent increase cut into money Rosenstein likes to have available to pay the kitchen staff who do not receive tips.

Jack’s Oyster House, down the hill from the Capitol, has served many of Albany’s most influential diners since it opened in 1913 on State Street. There, most of the servers are making well over the minimum wage.

“Right now, for fine dining, the average server makes $25 to $30 an hour just in tips,” Rosenstein said. “An average server here, they make $40 an hour.” For a full-time server, that can multiply out to more than $80,000 a year.

He employs about 10 servers, some part-time and some full-time. They bus the tables, too, because Jack’s Oyster House had to eliminate bussers.

There’s a possibility restaurants do away with tipping and institute an administrative charge if the tipped credit goes away, Rosenstein said.

“There would just be a straight percentage and then servers would be paid an hourly rate,” he said. “That would definitely hurt the quality of the service. There wouldn’t be an incentive for the servers to go completely out of their way to provide an outstanding experience, but the pressure would be on the management to make sure that they were providing that kind of experience.”

Rosenstein cited the example of Danny Meyer, a restaurateur in New York City who eliminated tipping at his businesses. That move has been criticized recently by some employees who saw a pay cut.

Kevin Dugan, who is the government affairs director for the New York State Restaurant Association, agreed restaurants might get rid of tipping if the change is made.

“If the tipped credit goes away, I think there’s a real danger and a real possibility that you’re going to see restaurants en masse do away with tipping,” Dugan said.

The association’s members are worried about Cuomo’s proposal.

“They’re very concerned with it because it’s going to significantly increase labor costs,” Dugan said. “It’s very tough to make it in the industry to begin with.”

The first step will be for the Department of Labor to hold hearings. Dugan said for now, the Restaurant Association is waiting to see what comes out of those.

Should the tipped credit be eliminated, it’s not an option for Jack’s Oyster House to raise prices, Rosenstein said.

“That’s the killer is that if you’re too expensive, people won’t come to you, and without the guest, you’re out of business anyway,” Rosenstein said.

Matt Mazzone, too, said raising prices wouldn’t solve the problem.

“In this market, it’s hard to justify increasing your prices just to justify that kind of increase in cost of labor,” he said. “If I raised all my prices by 50 percent, you really wouldn’t have any customers walking in the door because you’ve priced yourself out of the market.”

He is the chief operating officer of Mazzone Hospitality in Clifton Park, which merged with catering company Restaurant Associates earlier this year. The merger didn’t include the company’s restaurants, including Angelo’s 677 Prime, Aperitivo Bistro, and Prime at Saratoga National, which operate independently of Mazzone Hospitality LLC.

Because of that structural change, Mazzone Hospitality wouldn’t be hit as hard as some of the restaurants.

“It wouldn’t be as big of an issue for Mazzone as for 677,” he said.

About 20 people at Mazzone qualify for the tipped credit, while at the restaurants, there are about 100. What those servers earn ranges.

“I know that within our organization, we have servers that are making into the six-figures, and I know I don’t have any chefs that are making anywhere near that same compensation that the servers are making,” Mazzone said.

Mazzone Hospitality was hit by the last change in wages for servers.

“We’ve already started to see those effects, meaning that we’ve had to change our business model and that’s why we see more of our future growth in high-end catering and events,” as well as corporate catering, Mazzone said. “The restaurants, because of the last change, the margins got tighter and tighter, that the return isn’t there that it used to be.”

The tips help make it appealing to work as a server at a restaurant like Jack’s, which is open every day.

“We’re open holidays, nights, weekends, and for somebody to want to work Christmas and Christmas Eve and those kinds of days, they really want to have it be worth their while,” Rosenstein said. “It’s going to be hard to find servers.”

Last time there were wage discussions, Mazzone went to two hearings.

“A hearing’s only good if there’s a dialogue, and from what I’ve seen there’s never really been a dialogue with this administration,” he said. “I’m definitely going to work with our local assemblymen and senators to get our message out there that it just has to be fair.”