B U S I N E S S M AT T E R S
Commission Plan Can Replace Tipping by CHARLES MUSGROVE, CPA DIRECTOR, FINANCIAL AND ACCOUNTING SERVICES, CAPSERV360 | ANSWERS THAT COUNT PODCASTER
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The increase in the wages is best shown in this chart. Yes, that’s right, a 116% increase for tipped wages and 75% increase for minimum wage.
Contact: charles@capserv360.com, property of CAPSERV360
he minimum wage is increasing for many states at a fast pace to $15, but once it hits that amount, it will continue to go up. Florida is one of those states. In November, the voters of Florida narrowly approved Amendment 2, which will increase the minimum wage to $15 by September 2026 with a tip credit of $3.02. So, in September 2026, the minimum wage will reach $15 per hour, and the tipped wage will be $11.98 According to Chad Mackay, the CEO of Fire & Vine Hospitality based out of Seattle, Washington, “these increases are an attack on the tipped employee.” Chad is more than qualified to speak about the burden these increases will impose on full-service restaurant concepts. When Seattle imposed the increases over five years ago, he calculated that the cost to two of his restaurants for tipped employees alone would be over $700,000. Facing this magnitude of cost increase, Chad and his team determined that the best way to survive without eroding profit would be a new compensation model along with implementing service charges. The new compensation model they implemented was a commission-based model for compensating servers and bartenders. The model has proven effective for his portfolio of restaurants that include El Gaucho in Seattle (ElGaucho.com/elgauchoseattle). The plan gives them a long-term solution and not just a short-term Band-Aid.
How does the Commission Model Work?
Simply put, the commission model of compensation is to pay employees based on sales. An additional benefit is under DOL rules, Section 7(i) allows for excluding overtime pay. This exclusion is commonly referred to as the 7(i) Exemption. Under this model, the servers and bartenders, the restaurant’s real sales force, are incentivized to sell more food and booze because their compensation is increased. The restaurant includes a service charge as a percentage of the ticket. 7(i) Exemption
The following is from the U.S. Department of Labor. These are the requirements 40 SUMMER
2021
to meet for overtime to be exempt for commission pay. If a retail or service employer elects to use the Section 7(i) overtime exemption for commissioned employees, three conditions must be met: 1. The employee must be employed by a retail or service establishment. 2. The employee’s regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked. 3. More than half the employee’s total
earnings in a representative period must consist of commissions. Unless all three conditions are met, the Section 7(i) exemption is not applicable, and overtime premium pay must be paid for all hours worked over 40 in a workweek at time and one-half the regular rate of pay. How do the Numbers Work for the Employees?
In general, the previously tipped employee will now be paid an equal or greater amount of commission pay compared to tips previously earned. In the tipped model, the employee would share tips with other team members, FLORIDA RESTAUR ANT & LOD GING A S SO CIATION
