Portland restaurant announces no tipping policy

The Portland restaurant Kachka has announced a new wage equity plan, which involves charging diners a 22% service charge in lieu of tips, free healthcare for its employees and a profit-sharing model. We talk with Kachka chef and co-owner Bonnie Morales about the new policies and the intent behind them.

The following transcript was created by a computer and edited by a volunteer.

Dave Miller:  The Portland restaurant Kachka has announced a new wage equity plan. A 22% service charge will be added to bills in lieu of tips. The money will go to cooks and dishwashers, not just to servers. And the restaurant plans to give free healthcare to its employees in addition to profit sharing. But Kachka isn’t the first Portland restaurant to try a no-tips model and others went back to the status quo after what they saw as failed experiments. So what is Kachka going to do differently? Bonnie Morales is a chef and co-owner there and she joins us on the show. How did you decide that now was the time to make this change?

Bonnie Morales:  This is something restaurants have been talking about and trying and experimenting with for years.  I think the big difference now is that we’ve gotten to a critical mass of staffing shortages, pandemic-related stressors and inflation and things that are really making this something that would be a nice-to-have and turn it into a need-to-have. So that’s why we really started to dig into this again.

Miller:  So is it fair to say that [the restaurant industry] is facing a kind of existential crisis and now is the time to try different things?

Morales:  Absolutely. The restaurant industry has gotten plenty of attention for being a difficult industry to work in - razor thin margins, poor working conditions, etcetera for decades, really. And there’s this cult of the chef and everyone focuses on that. But no one pays too much attention to what’s happening behind the scenes.  And thankfully there’s been a little bit more attention brought to that, which I think allows restaurateurs who want to do right, who want to have a fair and equitable system, to actually be able to try to experiment with it.

Miller:  Is it the case though that you, as a restaurant owner, as the person in charge, could sort of bounce along and weather these storms and make it through, if you didn’t care at all about equity?What I’m trying to figure out is how much a really difficult time for the restaurant industry is making this necessary? Or is it just making you and others think, ‘let’s try this because we care about fairness’.

Morales:  I think, obviously, there’s still time. I think somebody just trying to make a profit and not necessarily caring about whose backs they step on to do that can still operate. However, that’s getting narrower and narrower.  You’re always going to have bad operators.  You’re always gonna have someone who’s substituting out cheaper ingredients and lying on the menu and paying their employees the minimum that they could get by with. That’s always going to be the case in every industry. I just think that the pressure is on for those folks a little bit more. And I hope that there’s a little bit more of a desire for following suit in what we’re doing and other restaurants are doing, which is to flip the narrative.

I came up, my husband came up in restaurants. We’ve been working in this industry for a combined 45 years. And I’ve been the line cook getting paid $10 an hour, who actually gets, if you look at it, paid $5 an hour.  You work off the clock half the time, pans getting thrown at you.  Just insane conditions. I’ve been that cook and at first when you become a restaurant owner, you don’t think too much about how you have the power to change that.  You just think, ‘well this is just the way it is’. But as you become more confident and more self aware [you recognize that you] actually have the power to do things differently.

Miller:  It’s fascinating there also is a part of your thought ‘I paid my dues’. That’s a terrible phrase but that’s a common one and you made it through, you survived, you thrived and you were able to make it to the top to be the chef and co-owner. And so the system “worked”?

Morales:  Sure there’s a little bit of that - well, back in my day.  And there’s grit and all of that but only to an extent right? I mean working hard [on] an unfair playing field doesn’t make sense. If you just have to apply yourself and you need to spend a certain number of years working as a dishwasher, but the wage for that is appropriate. It’s just really hard work. That makes sense. But when the cards are so stacked against you, that by just the very nature of working in a kitchen means that you will never be able to own a home. Just statistically speaking, that is just an untenable situation, no one should have to basically be an indentured servant for the rest of their life just because they love to cook.

Miller:  It’s been a little while since we actually talked about what the world of tipping means and the effects of tips on take home pay and what it means for the so-called front of the house versus back of house, The servers compared to cooks or dishwashers. Can you remind us of the basics here? What do you see and many others see as the main issues and the main problems with tipping,

Morales: There’s so much to unpack there. First off tipping is really meant to be money that is allocated directly to the people who serve the table in its purest form. That money, in a state like Oregon where servers make minimum wage in addition to that tip money, makes the disparity greater. There are a lot of states actually where there’s a server wage which is much lower, like around $3 an hour.  So in those states the disparity is not so great. But here, what that means is that when you take those tips, a server can walk with somewhere between $50 and $65 an hour, I would say on average.

Miller:  These are the averages that you’ve had in the past?

Morales:  Yes, I can definitely speak to these being averages of ours, but not just ours. This is sort of confined to mid-tier fine dining. This is pretty a normal take.  And a bartender is up to about $70 an hour. This is also in our particular model at Kachka. We pooled tips and tipped out the kitchen a small percentage. This is before all of the change and so that is already adjusted down from what it would have been if none of the tips were shared with the kitchen. So compared to in the kitchen again, we pay higher than average and at Kachka our kitchen staff makes about $20-22 an hour on average. That’s almost three times the difference in many situations. It would be totally okay if the position of a server required more training or some sort of higher degree or more time on the job than a qualified cook. But that’s just not the case.

In fact, most cooks go to culinary school and have other vocational training. They require many years on the job to [get to] a certain level to work in a fine dining establishment. Most cooks own their own equipment such as knives [which cost] between $200 and $500 apiece - all sorts of things like that. So again, I am not at all suggesting that front-of-house workers (servers) should be making less money than kitchen staff. Not at all. I just think that they are both required in a fine dining environment in order to make that experience a success. One is not more important than the other. They are two parts of a whole and for one to make three times more the other is just not tenable. And you know, it is a law. It’s long overdue that we really dig into this and see if we can change it.

Miller:  Bonnie Morales is a chef and co-owner of Portland’s restaurant Kachka.  Last week they announced a broad new wage equity plan which among other things, calls for an across-the-board, 22% service fee as opposed to tips. How did you decide on that number?

Morales:  There are a number of factors. One is that for a long time we had a small health and wellness fee, a little 5% surcharge. In doing this, we didn’t want to have to bog the check down with multiple service fees so we removed that 5%. And in order to make up for some of that we bumped up our service fee from what should have been 20% to 22. That amount, based on our calculations, allows us to offer free health insurance for all of our staff [who work] at the mandated minimum of 17.5 hours a week.

Miller:  Had you offered full health care to employees in the past?

Morales:  Yeah, we’ve been offering health insurance since our first year in operation. But we had always been just paying 50% of the premium. The change to pick up 100% of the cost is something that we rolled over to with our October open enrollment period just this last year.

Miller:  Mathematically, increasing all of your prices by 22% would theoretically be the same as instituting a 22% service fee on the total bill. Customers would experience that really differently. Everything would show up as 1/5 higher - as opposed to your getting the bill, and then at the bottom it saying actually ‘pay this much more’. [That] feels a lot more like the weird mental edition we do with tipping as opposed to having it be tacked on from the very beginning. What would raising prices mean? How would it work?

Morales:  Yes, very good point. I wish that we could just switch over to increasing our prices and really truly just take care of all of the nuts and bolts of what that means on the back end as a business. But there is some sort of a societal norm of paying for service separately from the cost of goods that has been ingrained and it’s going to take a lot more effort and work and collaboration with other like-minded businesses to do this at the same time. I don’t see that happening anytime soon. So raising prices would be this major mental shift that I don’t think we’re ready for. But I hope, as a goal, that we get to at some point.

I think doing that upfront was [an] issue with some of the restaurants in Portland and nationally, who tried switching to this model in years past. We’ve learned from that as being something that is a nice- to-have, but we’re just not ready for. And the other thing I want to address is that when you separate it out and say, ‘okay, well we’re allocating this money for a certain thing’. It makes it really clear that we’re not just raising our prices because of inflation or the cost of some ingredients went up. We’re being very conscious of what this money is for and communicating that, so that customers who want to support businesses that are treating their employees fairly can know where their money is being spent.

Miller:  You referenced that about six years ago, Loyal Legion bar and Le Pigeon, both in Portland, tried a no-tipping model independently for a little while. Then they both went back to the version of fine dining or drinking that Americans are so used to at this point. What did you learn from their experiences?

Morales:  There’s a couple of things. One is that they tried folding that into the prices and there’s just a psychological shift there that as a society, I don’t think that we’re ready for. The other thing is although I would like to think that my employees trust me not to be absconding with extra profit because of this model, which is not the case obviously. But just in case they don’t, I think it’s really important to be transparent with your finances. So in the profit sharing that we’ve started, we’ll make sure that we are being really transparent with our books and that if there is some sort of extra profit, because of this model, it’s not going into my pocket or my husband’s pocket. That’s not the intention.

The intention is for that to be a shared resource for all who made that happen. Another thing I don’t know that I necessarily saw others failing at this model and thought oh this is what was missing. But I know in thinking about putting myself in the shoes of an employee who used to have control over this money that’s coming in and now I’m taking that away, that this component is necessary to make sure that there’s nothing fishy going on.

Miller:  So you outlined before the average ranges for different kinds of workers in your restaurant right now in the kitchen $20-22 an hour or so, servers, $50-65, bartenders could get even more. In the new model, what’s your estimate for how much these different employees are going to make?

Morales:  We have ranges for all of our positions. In the kitchen the starting wage is $25 an hour for an hourly line cook or prep cook. We then have different salaried positions that are management and those start at $55,000 annually and go up depending on the position. In the front of the house our starting wage for servers is $28 an hour and bartending is about $30 an hour. And then again management goes up from there and it’s a salaried position and there’s wage ranges, again, starting at $55,000 and up. And I want to point out something with that, in particular. In the status quo model of tipping, the entire wage structure is upside down and it means that servers and bartenders make the most money in the entire business. Usually they make more money than their bosses or the owners.

Although obviously we just talked about the servers making $55-$60 an hour and now they’re making $28. That’s half of what they were making and that is true. However, there is no world in which the general manager or the floor manager overseeing a server should be making less money than the server. So this is trying to reset the whole system so that there’s actually something positive and something earned and moving up as it should be in any work model.

Miller:  That makes perfect sense as you’re describing it from an equity perspective, from just a basic fairness perspective.  But I’m imagining if I’m a server and I’m going to make on average half as much in terms of take home pay, even adding in health insurance and maybe some profit sharing, although from what I’ve read doesn’t something that’s gonna be a huge increase, servers are going to be making less money at Kachka under this new more equitable model, What have you heard from them about that?

Morales:  Well I can tell you what I see. We have not lost a single employee. We started talking about this in September so we gave plenty of runway and plenty of opportunity to go elsewhere if this was not something that they wanted. We were really transparent with what it would look like, how much they were making and how much they would be making and all those things. And not a single person has put in their notice and is leaving because of this.  I think that speaks to how much of an inequity this has been. Every single person we spoke with who was a server making more money acknowledged that it wasn’t right that they were making more money. And they know that this is something that the industry needs and they wanted to be here for that change.

The other thing as far as the nuts and bolts of it go is that we’re restructuring the way we schedule and how a shift looks so that, although the dollar per hour might be going down, the amount of available hours that a server has is going up. So that their take home net will still be less, but not as much less as you would think.

Miller:  Starters and small plates at Kachka, your restaurant, average around $15, larger dishes are around $25. So I mean this is not exact but I think that is sort of the upper-middle range price wise for sit down dining in Portland. Do you think that the model that you’re trying now could work across different price ranges including less expensive restaurants?

Morales:  In doing this and making this switch we dug really deeply into our numbers. We set up tons of different fake payrolls using actual hours and actual sales in our restaurant in order to get to where we got. So I don’t know if it transcribes to other styles, quick service and things like that. And that’s something that I myself am very curious about - how that would look in another model.

But I do think that there’s definitely a solution you know. Before working in restaurants I went to school and worked in industrial design, product development.  One of my favorite things about that industry was that it was really just about solving people’s problems. You take a look at whatever these devices or things that you’re doing and how we can do it differently, how we can make it better, how can we solve the needs of people? I’ve always loved that part of my old life and I take that with me everywhere I go. I think I just see this as another problem to pick apart and try to solve in a different way.

Miller:  The interesting thing about that is that restaurants have actually done a really good job of solving what would seem to be the major problem that you have in front of you which is making tasty food for people and having people pay for that. So that’s not the problem right? The problem is how to do it in a way that’s sustainable, equitable, fair and good when you’re actually doing it inside the restaurant itself.

Morales:  That’s correct. You know it’s funny because most restaurateurs don’t just wake up as a kid and say ‘I want to grow up to be a restauranteur’. Most of us came to this spot in our lives through working in restaurants. My core competency is cooking, my husband’s core competency is running a perfect service and being an amazing server. That’s where we come from and so it’s so funny because that part of the job (our core competencies) that we were designed to do aren’t really the things that makes the restaurant tick as far as [whether] it is going to make it another year. There [are] bigger issues to solve here and you know we’re getting to the point now where we’re starting to think we’re solving societal issues.

And you start to wonder if this is my problem? Should I just let it go and just do what I’m good at or is it my responsibility to try to make things better.  It’s hard for us to sleep at night when we don’t feel like we’re trying to make things better and I think that should be any restaurateur or small business owner’s goal. How am I making the world better? And it doesn’t have to be this big thing about solving the whole world’s problems. But how can I solve the problems of just my employees in my business?

Miller:  The first half of the show obviously was about the Omicron variant and the way it’s wreaking havoc with staffing affecting schools all across Oregon. How are you doing business wise right now with this Omicron wave?

Morales:  It is not looking good Dave. The start of this all was the week of christmas and what should have been the busiest time of year. [It] was still very busy but you could feel that there was something up. We started seeing covers dropping when they should have been rising. And it’s just gotten worse and worse each week. And the interesting thing is it’s sort of like a controlled dive because we were anticipating it and expecting it to happen. So it’s nice when you at least understand the why but it still doesn’t cure anything. You know you still need sales. So that is definitely a huge consideration.

It’s crazy, there was the tax credit last all through last year for paid sick leave for COVID and it expired in September. And we didn’t have to use it really once last year because there were just so few cases and nothing really going on. And now suddenly when we actually really need it and many small businesses desperately need it, it’s expired and no longer available.

So it’s going to be a very very interesting winter and I’m very nervous for what, not just the Portland restaurant industry will look like at the end of this winter but really, what the restaurant industry as a whole in the U. S. is going to look like after this winter. It’s really going to make some big changes I think.

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