Total Compensation
Commissions and Wages
What is total compensation and why should we implement it?
Total compensation is a policy that includes taxable tips, commissions and wages in calculating a tipped employee’s taxable income. It’s a win-win – it allows employers to allocate limited labor dollars to non-tipped employees without decreasing the earnings of their servers and bartenders and improves income equality between highly compensated front-of-house staff and non-tipped heart-of-house staff, who are 70% Latino.
Myth vs. Fact
Myth: Total compensation creates a “sub-minimum wage” that lowers the minimum wage for tipped employees.
Fact: Total compensation ensures that tipped employees earn higher than the state minimum wage while also ensuring that heart-of-house workers, who are 70% Latino, are not left behind and with less long-term earning capacity as a result of reduced wage ladders and fewer discretionary dollars for raises. The minimum wage will increase to $10 per hour on January 1, 2016 as mandated under current California law. A total compensation policy will not impact the wage for non-tipped employees, or tipped employees who earn well over the state’s minimum wage.
Myth: Total compensation doesn’t help create income equality for heart-of-house workers.
Fact: Like most businesses, restaurants have a job ladder where wages are increased as employees gain skills and progress from an entry-level position. Restaurants have a finite number of labor dollars. If you increase the wage for entry- level positions at the bottom of that ladder then there will be fewer rungs on the wage ladder for workers as they gain experience. Total compensation avoids this issue by freeing up li mited labor dollars for heart-of-house employees while guaranteeing significantly higher than the minimum wage for tipped workers.
Myth: Total compensation does not allow communities to increase the local minimum wage.
Fact: A total compensation policy empowers communities by giving them local control over the minimum wage. It does not mandate a specific local minimum wage, or preempt in their entirety existing local minimum wage laws. Total compensation would establish a statewide minimum wage rule that applies only to tipped employees that earn significantly more than the minimum wage. A local jurisdiction that disagrees with this rule may “opt out” by passing an ordinance or resolution that rejects this rule for tipped servers.
Myth: There is no way to verify that a server is earning the hourly threshold.
Fact: Because over 90 percent of restaurant transactions take place with a credit or debit card, employers will be able to verify a server’s wages. Employers are responsible for reporting and paying taxes on employees’ tips, so employers already provide a report to the IRS on those numbers.
Myth: Total compensation is sexist – it condones sexual harassment and reduces the pay of female servers.
Fact: The California Restaurant Association has absolutely no tolerance for sexist policies or sexual harassment. California has some of the strictest laws on these issues in the country and the CRA – along with the restaurant industry as a whole – is fully supportive of their enforcement. Total compensation would ensure that all tipped workers, regardless of gender, race, age, etc. receive significantly more than the minimum wage. It does not reduce the pay of anyone.
No one should face discrimination in the workplace. Under the current compensation structure, back of house employees – who are 70% Latino – do not receive the same financial benefits as tipped workers. A total compensation policy would help to equalize this discrepancy by allowing limited labor dollars to be allocated to non-tipped employees, benefiting those who need the increase the most.
Myth: Total compensation allows employers to withhold an employee’s earnings, known as “wage theft.”
Fact: California has strict laws against wage theft. But contrary to opponents’ claims, what we have seen in other areas that increase minimum wage is an increasing shift to a service charge in lieu of tips. These dollars are spread across all workers in the restaurant instead of going primarily to tipped workers. Total compensation helps both tipped workers and back of house workers by increasing wages in the heart –of the- house, but ensures that tipped workers are able to increase their hourly wage with tips. The heart -of-the- house has long been left behind in the wage ladder and it is time we support policies that not only increase back of house wages, but preserve a wage ladder for long time, career back of house staff that are largely minority and Latino.
“The California Food Service Workforce” prepared by Decisions Demographics for the California Restaurant Association. (November 2013)