In a tough labor market, everyone’s talking about recruiting — but what happens when you actually make a hire?

This week, Kickfin co-hosted a webinar all about building a scalable onboarding process that will reduce turnover and keep you in compliance.

The panelists

We were honored to have an all-star panel of folks who share decades of experience working with hospitality employers.

• Justin Roberts, Co-founder, Kickfin
• Jenny Ryyppa-Rodriguez, Territory Manager, Heartland US
• Beth Schroeder, Partner, Raines Feldman LLP

The agenda

Our panelists focused on three key areas areas of discussion:

1. Why does onboarding matter?
2. Top onboarding mistakes restaurant employers make
3. 5 ways to optimize your onboarding for scalability and compliance

Watch the whole webinar below!

The demand for cashless tipping has reached an all-time high. And for good reason: When was the last time you paid for something in cash? 

Or perhaps a better question: When was the last time a valet assistant pulled your car around, and you experienced that all-too-familiar moment of panic when you realized you had zero cash for a tip? 

According to the Federal Reserve’s 2021 report, cash accounted for only 19 percent of all transactions in 2020, down seven percentage points from 2019 — and we expect that decline to continue. By and large, consumers now pay for purchases with their debit cards, credit cards or using digital options like ApplePay or PayPal.

To further complicate the cash tip conundrum: When people do carry cash, they often are not carrying small bills used for tips, since most bank ATMs generate $20 bills as a minimum. 

There are certainly perks to this cashless trend. And for many restaurant workers, it’s a non-issue because guests can easily leave credit card or digital tips when they pay their bill. But for workers who have always relied on cash tips as a significant portion of their take-home pay — like valet parking assistants, bellhops, hotel maids, airport skycaps — it’s a big problem. 

But it’s one that can be solved, thanks to cashless tipping technology. Long story short: cashless tipping gives your customers an opportunity to show their appreciation for your employees, no cash required. Here’s everything you need to know about cashless tipping…

What is cashless tipping?

Cashless tipping, sometimes known as digital tipping, delivers tips from one party to another online via:

• tip acceptance software: allows a diner or guest to tip a service provider digitally/without cash
• tip distribution software:allows an employer to digitally/instantly pay out tips to an employee at the end of a shift.

Why is it important to offer cashless tipping options? 

Cashless tipping options ensure that tipped employees can continue to maximize their tip earnings and access them in a timely manner. They can also make it easier for employees to accurately track and report on their tip earnings for tax purposes (which, in turn, ensures they can qualify for unemployment, loans, mortgages, credit cards, etc.).

On the employer side, introducing cashless tipping into your operations gives you a more seamless way to facilitate tipping across your team, building more transparency, trust, and employee loyalty. Cashless tipping also allows you to track tips more carefully, both for reporting to the IRS and so you can better understand employee performance.

What are the benefits of cashless tipping for restaurants?

Most U.S. restaurants already accept cashless tips via credit cards or at your point-of-sale system (POS). That means consumers can easily tip, even if they’re not carrying cash. 

But paying out those cashless tips at the end of a shift becomes a problem. As a result, cashless tip distribution software has become a must-have tool for restaurants, especially those where the majority of tips are paid by consumers on credit cards, debit cards, or your POS. 

Cashless tip distribution software, A.K.A. digital or automated tip distribution software, delivers a number of benefits to both employers and employees:

Time and cost savings

More effective recruiting

OK, one more time for the people in the back: employees want instant access to their tips. So when restaurants can offer real-time, digital tip payouts, that becomes a great recruiting tool. It keeps hospitality employers competitive with other gig-economy jobs that offer instant, daily pay — and more importantly, it shows you care about the financial wellbeing of your workforce.

Employee retention

Compliance with labor and tipping laws

Hospitality employers must pay at least the federal minimum wage, which comes to $7.25. Under the Fair Labor Standards Act (FLSA), however, restaurants are eligible for a tip credit, which allows them to drop that number to as low as $2.13 an hour (depending on the state in which your business operates), relying on tips to make up the difference. This puts the onus on the employer to ensure ensure their employees are receiving enough tips to get them to minimum wage. Digitizing tip-outs makes it easy to easy to track and report tips — giving you, your employees, and your accounting team 100% visibility.

Also worth noting: Tip pooling laws are complicated and can vary greatly from one state to the next. Cashless tip distribution software helps restaurants maintain compliance, ensuring your employees are being treated fairly and keeping your restaurant out of legal hot water. 

What are the benefits of cashless tipping in hotels and airports? 

Hotel and airport employees have been among the hardest-hit tipped workers when it comes to this movement toward a cashless society. 

Think about it: there’s no immediate bill attached to many of these services, and no POS interaction — like when a valet assistant parks your car, a bellhop delivers bags to your room, a hotel maid makes your bed, a skycap handles your luggage, etc.

Sure, some folks might sprint to the ATM — but for the most part, if consumers don’t have cash on the spot, their service providers will lose out on a tip.

That’s why hotels, airports, and other service industry employers are enabling the acceptance of cashless tips. Two key benefits of cashless tipping for hotels and airports:

• A more seamless experience for consumers. The option to tip digitally allows hotel guests and travelers to easily tip when they want to, where they want to.
• Increased employee earnings. Cashless tip acceptance boosts your employees’ take-home pay — so they don’t have to suffer just because no one is carrying cash these days.
• Stronger employee performance. With the option to tip digitally, consumers aren’t limited by how much cash they have in their pockets. That means employees have the opportunity to earn larger tips, incentivizing them to provide top-notch service.
• Improved recruiting and retention. When your employees are fairly compensated — and have higher earning potential — it gives them a reason to stay with their current employer versus jumping around. Plus: they tend to be happier and feel respected by their employer, making for a stronger workplace culture. 

What are the downsides of cashless tipping? 

As mentioned above — one of the biggest hiccups that comes with the switch to cashless tipping is the tip payout process. When employers enable cashless tip acceptance, that means there’s essentially no cash on hand to pay out tips at the end of a shift.

Yes, cashless tipping is great for all of the reasons outlined above. But at the end of the day (literally), hospitality workers want instant access to their earnings. And you can’t put digital, cashless tips in your pocket. 

Some employers might put tips on payroll (making their people wait days or weeks for their earnings). Or they’ll consider pay cards — which unfortunately charge hidden fees or service charges that further reduce available tips for your staff. 

That’s why it’s critical that employers who enable cashless tipping also take take advantage of real-time digital tip payout software.

According to a recent PYMNTS.com survey, 83% of workers want access to earnings after every shift, and 80% prefer those funds get automatically streamed to their bank accounts. Instant, cashless tip payouts gives employers the ability to meet those demands.

Implementing cashless tip payout software

Kickfin is the largest enabler of real-time, cashless tip payouts. It can be used as a standalone software, or it can integrate with the rest of your hospitality tech stack — POS system, payroll software, etc.

Employers can get Kickfin up and running in one day. Once your restaurant or hotel signs up:

• Employees create an account and connect it to their existing bank account.
• Managers input the total tips at the end of a shift and automatically distribute them. 
• Funds appear in employee bank accounts immediately and are ready to use.

Kickfin makes tip distribution safe, seamless (and trackable!), whether you’re enabling tipping through your mobile app, your POS, or both.

Learn more about how Kickfin can help your restaurant, bar or hotel business — schedule a demo today!

How much money are you actually making at your restaurant? That’s exactly what a restaurant profit and loss statement can tell you.

Let’s break it down by one of the most common menu items in the United States: Pizza. Popular restaurant chain Domino’s charges $17.99 for a large (14”) pepperoni pizza in the Boston area. But Domino’s doesn’t make $17.99 on the pizza. Every pie costs money in ingredients (flour, cheese, sauce, spices, pepperoni), labor (the average MA Domino’s employee makes $16/hour), and packaging (pizza box).

What’s left over after all of those costs is the profit on that particular pizza. And that doesn’t even include fixed costs like rent on the kitchen space, utility and heating, appliances, and other overhead.

Answering the question of how much money you’re making as a restaurant owner can get complicated fast. But whether you’re using a team of accountants or managing the books yourself, you’ll need to put together a profit and loss statement (often shortened to the phrase “P&L”) to tell you just that. Here’s everything you need to know about creating and reading one:

What Is a Restaurant Profit and Loss Statement?

A profit and loss statement provides a record of a restaurant’s financial health by outlining revenue, costs, and expenses during a set period of time — usually over a fiscal year, but it can be more frequent depending on your management style or if you’re part of a public company. Another word for a profit and loss statement is an income statement, because it shows your overall restaurant income for the year.

Your profit and loss statement goes into detail for each revenue and expense to determine your net income, or profit. Here’s the basic equation:

• Profit = (Total Revenue + Gains) – (Total Expenses + Losses)

A good way to remember this is thinking back to the Domino’s example. At the end of a given pizza, how much of that $17.99 does the restaurant actually see? Profit is ultimately what your restaurant “pockets” at the end of the year after paying for restaurant space, food and beverage supplies, employee wages and tips, and other overhead, like linens, decor, or appliances.

Keeping up a regular P&L statement helps you assess your restaurant’s financial health so you know exactly what’s coming in and what’s coming out — so you can make sure your restaurant stays as profitable as possible.

How Often Should You Update Your Restaurant P&L Statement?

A P&L is one of the building blocks of your restaurant accounting and should be updated on a regular basis, though the exact timing is up to you. Because it’s a helpful snapshot of your restaurant’s financial health, many restaurant owners prepare one weekly or monthly. If you have multiple restaurants, you’ll want to create a profit and loss statement for each individual unit as well as your business as a whole.

Monitoring your P&L gives you insight into:

• Whether or not your restaurant is profitable — which can take time
• How to prioritize business decisions, like adding new menu items, changing suppliers, or hiring and staffing
• Where your “money makers” are on your menu
• Any inconsistencies or losses that don’t make sense, which is a sign of theft
• At a minimum, it should be prepared each quarter as part of your quarterly taxes.

Many point-of-sale systems automatically generate P&Ls on an ongoing basis so you can see an updated dashboard of your performance.

What is Included in a Profit and Loss Statement?

Restaurant owners create P&L statements in one of two accounting methods: Cash and accrual.

• The cash method is the simplest accounting method and focuses on money flowing in and money flowing out. Restaurants record transactions for every cover and record liabilities (expenses and losses) whenever bills come due.
• The accrual method records revenue as it is earned, rather than when cash is received. This method is more common for businesses that provide services or products, such as retail or software, where customers order in advance before receiving payment.

These two methods differ on the specifics included in your profit and loss statement, and how far in the future you record sales and expenses. Which method you choose is up to you (and may be worth chatting with an accountant about.)

In both methods, however, profit and loss statements include each element that makes up profit:

• Sales and revenues by category: Food, wine, liquor, merchandise, for example
• Costs of goods sold (COGS) by category: Typically, how much it costs for your ingredients.
• Labor: Wages, tips, and salaried employees
  Incidental operating expenses: The types of costs that fluctuate, like advertising, miscellaneous repairs, administrative expenses like credit card fees, utilities, live music, and so on
• Fixed costs: Monthly rent, insurance, and other overhead costs you cannot change or control
• Depreciation: Over time, your assets, like appliances and restaurant equipment, depreciate in value. Calculate this cost using this formula.

Subtracting the sum of all of your costs (labor, operating expenses, fixed costs) from your sales and revenues will give you net profit.

Note that profit typically is calculated before taxes. Many P&Ls include an “income before taxes” line and then a line to calculate your taxes afterwards.

How to Create a Restaurant P&L Statement

Now, it’s time to put all of those elements together. Here’s an example of what a P&L statement could look like for a restaurant. You’ll want to make sure you include the categories and costs most relevant to you, but you can start with this template.

This example below takes a high-level approach, but it’s worth creating a detailed examination of at least your expenses, if not your revenue by menu item, at least once every quarter.

When it comes to craft breweries, Andrew Coplon says great beer is table stakes.

And he knows a thing or two about the craft brewing industry: Andrew is the founder of Craft Beer Professionals and Secret Hopper — which means he spends his days helping brewers optimize their operations and increase their in-house revenues.

While top-notch brews might bring people into a brewery, Andrew says it’s the taproom experience that keeps people coming back.

So how do you turn first-time guests into die-hard fans? Andrew says there are three key factors that will create brand loyalty (and generate repeat business) among your taproom patrons. Read on for the full interview!

What is it about taprooms that people are drawn to?

It’s all about the connections you make there. For me personally, I love learning. So when I visit a taproom, I’m usually talking to the staff. I’m learning about them personally, and I’m also learning about the taproom — what’s the story, what were the goals, what are their values. And of course, I want them to teach me about the beers.

But it goes beyond the staff. Recently, my family and I were at a brewery in Northern Virginia. It was the first time we had done something like that since before the pandemic. While we were there, we were sitting with another family outdoors — we were talking about where we were from, how we both had toddlers. I completely forgot how much I enjoyed talking to strangers.

It’s so simple, but that’s what happens in these spaces. They bring people together.

What are the variables that can make or break the taproom experience?

There are really three key factors. I actually think about it like a Venn diagram.

Beer is the first circle. Atmosphere is the second circle. And then staff is the third circle. When you do all three of those things really well, you’re going to create the ultimate taproom experience.

So what does that look like in practice? How do you optimize all three factors?

Well, beer is a given. The beer has to be good. And that’s what will draw people in. Everyone’s there for the beer initially. But we’ve all been to taprooms where we’ve had a great beer, and we never come back. Great beer is a must, but it isn’t enough.

The atmosphere — it’s a lot of little things that come together. Lighting, music, food. What’s on the walls? Does the space tell a story, or does it just feel kind of cookie-cutter?

And then there’s the staff. What are they like? Are they just doing their job, or are they engaging the guests? Are they knowledgeable? Are they making and facilitating connections?

As an example: When I visited Perennial Artisan Ales in St. Louis, the person behind the bar was talking with me, sharing personal tidbits about herself. She told me she was in a band that toured around. It was a great conversation. A year later, I go back to the same taproom. I’ve got the same server. And she says, “Aren’t you the guy from Virginia?” A whole year later, she remembered who I was. 

That story also speaks to the importance of hiring and retaining the right people — which is incredibly challenging right now. Plus, it takes a more specialized skillset to manage a taproom. How are operators handling the tough labor market?

Staffing right now is very challenging within the craft brewing industry.

Bottom line: You have to know what your goals are. Is it important to hire someone who already knows a lot about beer? For some breweries, it might be. But in a lot of cases, you can find someone who literally just likes to talk to people — and then you can teach them everything else.

I have a friend who owns a taproom in Richmond, Virginia. When they closed during Covid, they lost almost all of their staff. They were having trouble hiring when they reopened. He ended up bringing on an out-of-work teacher. And pretty soon most of his staff ended up being former teachers. It worked so well — sure, they knew nothing about beer, but they knew how to educate people and break things down.

Basically, your employees don’t have to be the biggest beer nerds. They just need to be great with people and willing to learn.

So when an operator wants to address any of those three factors — beer, vibe, staff — how do you make sure everything still feels cohesive and true to your brand? 

Well, you really have to know your brand. And I often tell people — you should be able to explain or articulate the essence of your brand in about five words.

If you can’t: consider bringing your team team together, and have everyone collectively write down a handful of words that pertain to your values, or your vision for your brewery, or how you want to make people feel when they’re in your space. It could be random words, or you could turn it into an actual mission statement.

Lady Justice Brewing in Colorado has a great tagline — “Great beer. Better world.” That’s what they stand for, and every aspect of their taproom experience reflects that.

It’s important to find a way to differentiate your brand — with 9,000 breweries out there, differentiation is a must. And you need to get buy in from your staff. Get them involved in the process and excited about what you stand for. That way, they’ll feel personally invested in it, and they’ll embrace it.

What would you tell operators who don’t know where to start? What if you’re not sure what’s working and what needs to change?

A great way to learn more about the guest experience is by simply talking to your guests. Ask them questions. Also, visit other breweries. What are they like? How are you greeted when you walk in? Follow them on social media. See what they’re doing and learn from them.

To be honest, it can be hard when you’re in your own taproom day in, day out. It’s kind of a blur. You’re not thinking about all the little things.

That’s a big reason why we started Secret Hopper. It’s a secret shopping service for craft beer businesses. We send mystery shoppers into your brewery, and we analyze about 25 different components that contribute to the guest experience. So that gives you a baseline. We might discover engagement is low or staff members are doing things inconsistently.

Then we give you some actionable steps to improve those different components, and we’ll customize that plan based on your brewery’s specific needs. We also host workshops that address a lot of the challenges that craft breweries face.

Aside from generating repeat business, how does enhancing the guest experience impact a brewery’s bottom line?

Over the course of thousands of non-paid brewery visits, we’ve gathered some data points that really blow me away. For example, during about 45 percent of visits, guests aren’t encouraged to get a second drink. That’s crazy. When you simply ask your customers if they want another beer, the average tab is $6.50 higher.

We also discovered that brewery staff ask guests if they would like to purchase to go beer 18.6 percent of the time. When staff doesn’t ask this question, guests only purchase growlers 9 percent of the time, but when staff members do ask, guests purchase growlers 49 percent of the time. 

These are simple changes you can train your staff to make that can significantly increase your revenues.

What would you tell operators who might have the guest experience down pat, but for whatever reason, they’re having trouble getting people in the door?

Marketing is half the battle. You’ve got to make sure people know you’re there.

Get creative. Innovate. Look outside of your space — how are your favorite brands marketing themselves? Netflix, Starbucks — what’s working for them?

Don’t be afraid to ask for help. There are a lot of marketing agencies that specialize in craft beer. Or consider bringing someone on your team who has that skillset. They might cost more money, but if they do their job well, it’s a worthwhile investment.

 Do you own, operator or work for a craft brewery? Join the Craft Beer Professionals community on Facebook and connect with more than 14,000 beer pros for tips, networking and collaboration! 

For decades, tipping has been the domain of dine-in, full-service restaurants. In fact: tips make up the majority of earnings for front-of-house staff at most FSRs, thanks to the tip credit. 

But in a post-Covid world and a tough labor market, more and more quick- and counter-service restaurants are enabling tipping.

The QSR tipping trend has coincided with the proliferation of mobile apps. Panera Bread now asks if you want to add a tip to your order at checkout. At Starbucks, you can select denominations in $0.50, $1.00, or $2.00 increments within the Starbucks for iPhone app. And popular burger chain Sonic rolled out digital tipping to 2,000 locations across the U.S. in November 2021, bringing in $12.2 million in gratuities to their employees. 

Here’s why QSRs are enthusiastically embracing tipping, both in-store and through their mobile apps.

1. Stop the “wage wars”

52% of families of front-line fast food workers are enrolled in a public welfare program, and one in five live below the poverty line. With median pay across the U.S. for QSR workers at only $11/hour, and with varying shifts, it’s often not enough for workers to live on. That’s why since 2012, fast food workers have made a concerted push for higher wages in so-called “wage wars,” both through policy changes such as the “Fight for $15,” which successfully raised the minimum wage in New York City and by negotiating directly with restaurants. 

But as people in the business know, the realities of running a restaurant make increasing wages complicated. When quick- and counter-service restaurants enable tipping, they can significantly increase the earnings of hourly workers, far beyond what revenue constraints allow. 

Take The Human Bean, a national drive-through coffee franchise. When a Georgia-based franchisee enabled tipping and used Kickfin for instant, digital tip payouts, their employees’ take-home pay increased by an average of $4/hour.

2. Get the competitive edge on hiring

QSRs that jump on the tipping bandwagon now have a significant competitive advantage over other employers when it comes to hiring.

The nationwide labor shortage remains one of the most challenging aspects of restaurant management: 78% of restaurant employers told the National Restaurant Association that recruiting and retaining employees was their top challenge in the past year. With more than 1.7 million job openings across the United States in the leisure and hospitality sector, it’s more difficult than ever to find employees.

If you don’t have a crystal ball, you need a Danny Klein.

Danny is the editorial director at Food New Media, and he’s got his finger on the pulse of every hospitality category and trend. He sat down with Kickfin to talk about “NextGen Casual” — an emerging industry segment that everyone in the restaurant biz should be watching. Read on to get the lowdown on NGC: what it is, why it is, and how it could impact other more established segments in 2022.

Let’s dive right in: What’s the background on NextGen Casual? Is it coming? Or is it already here?

I actually coined the term “NextGen Casual” somewhat recently, but the segment really started emerging about 4 or 5 years ago. It’s kind of a bucket for restaurants that don’t fit squarely into full service or fast casual. And there are a lot of them.

OK, so it’s a middle ground between FSR and fast casual?

In a way, yes. It’s really a segment of the FSR category.

The thing about full service is that, compared to quick service, it’s very nuanced. You’ve got your local Italian restaurant, and then you’ve got like, Applebee’s. Those are such completely different full-service experiences, and so many restaurants fall somewhere between the two ends of that spectrum. 

So we’re talking about this growing segment of full-service dining that’s inspired by, or even borrowing from, fast casual. What made fast casual so popular is that it showed consumers that they can get a convenient but high-quality experience, without spending too much money.

NextGen Casual is similar in that it’s accessible, adaptable, and there’s a heavy emphasis on quality — but again, it’s full service, not counter-service. 

What are the hallmarks of a NextGen Casual restaurant?

The criteria are still flexible, but NextGen Casual restaurants are essentially better food and service, with a more authentic experience, at a reasonable price point. 

The brands that fall into this category are relatively smaller full-service chains — what you might call micro-chains or emerging chains. They’re generally anywhere from 5-200 locations (although that’s not set in stone by any means). 

One of the most important and differentiating elements for NextGen Casual brands is that they’re looking to grow. Casual dining as a whole hasn’t grown much in almost 15 years when it was starting to retract because it was an overleveraged segment. But NextGen Casual restaurants want to expand.

In terms of food, NextGen Casual restaurants tend to be chef-driven. Menus are often seasonal, and they aren’t big. They’re simpler and more focused. There are different price points, too — there might be shareable plates or bar programs like happy hours or wine dinners. It allows you to access these concepts on your own terms.

At the most basic level, NextGen Casual is kind of breaking away from the negative elements of the chain experience that signals to someone that, you know, the food will be out of a freezer or it will all look the same. The overall experience is a step above what people have come to expect in a chain restaurant. One location might be different from the next — much less of a cookie-cutter vibe. 

And these brands often stand for something. They’re companies that consumers can align with. They make their mission or values clear when you walk through the door.

What are some brands that fall into the NGC bucket?

We made a list, and it’s in the hundreds. True Food Kitchen is a great example — you’re talking about a brand that lives by a very specific, purpose-driven ethos, which in their case is this anti-inflammatory food pyramid. Your typical casual dining chain was never going to do anything along those lines.

And also the True Food restaurants all look different depending on the city you’re in. There’s a sense that people will go into one and not realize there’s X amount of these across the country.

Another Broken Egg, Eggs Up Grill, Walk On’s, Black Bear Diner, Lazy Dog. First Watch is a little bit of a unicorn given how large they are, but they still live by the principles we’re talking about.

Is this movement having any impact on brands that fall into the traditional categories (FSR, fast casual, etc.)?

We’re definitely seeing the big-box restaurants trying to embrace some of what NextGen Casual stands for. Making their values more front-and-center. Pared down, seasonal menus. Chili’s cut 40% of their menu. They’re not trying to be all things to all people anymore.

It’s happening in fast food, too — like McDonald’s moving away from frozen beef. 

Why is it important to put a name on NextGen Casual?

By naming it, we’re giving these restaurants something to attach themselves to — a way that like-minded people and businesses can come together and learn from one another. We’re in the early stages of connecting people, but there is definitely a lot of enthusiasm. We’re getting brands coming to us saying, “Hey, this is us. We’re NextGen Casual.”

NextGen Casual restaurants also want the consumer to know what they’re doing. The work they’re putting in that might not be obvious — like better sourcing, for example — so they want consumers to understand the value there.

Obligatory “new year” question: What are the big industry trends that will gain momentum in 2022 — and does the NextGen Casual segment play into those?

We’re definitely seeing the big-box restaurants trying to embrace some of what NextGen Casual stands for. Making their values more front-and-center. Pared down, seasonal menus. Chili’s cut 40% of their menu. They’re not trying to be all things to all people anymore. It’s happening in fast food, too — like McDonald’s moving away from frozen beef. 

So at a high level, we’ll continue to see major chains improve their food quality, mission statements — and also the way they treat employees.

I think restaurants across the board will cater more to what the individual consumer wants. Loyalty programs, for example, have pretty much become table stakes for QSR. But the type of rewards are evolving away from a punch card. We’re seeing tiered rewards, so you can start to choose what you get — the restaurant isn’t just giving you a free cup of coffee. 

How can NextGen Casual restaurants officially “join the movement,” so to speak?

In 2022, we’ll be sending out a newsletter, growing our online community, and hosting events. The goal is to provide a forum for this segment, and especially to connect the thought leaders behind it. These are the people who are truly driving innovation across the whole hospitality industry. 

Want to learn more about NextGen Casual? Check out Danny’s article here, and sign up for the biweekly newsletter here.

With ever-changing legislation — and mounting litigation — service fees and tip policies have become a hot topic.

In this Hot Tips & Takes interview, Beth Schroeder, a partner at Raines Feldman LLP, addresses common misconceptions that can get restaurant operators, owners and execs into legal hot water.

Beth is a preeminent Labor & Employment counsel with more than 30 years of experience in representing employers in all aspects of employment and labor law. Read what she has to say about restaurant service charges, surcharges and tip pools below. (Keep in mind: while resources like this are a good place to start evaluating your policies, they aren’t intended as legal advice! If you have questions or concerns, seek legal counsel, ideally from an attorney or firm with hospitality expertise.)

How are restaurants dealing with minimum wage hikes, labor shortages, and other challenges that have been putting a financial strain on the industry?

If you don’t think you’ll be taking these costs on as a patron, think again. When labor goes up, no matter what industry you’re in, most likely that increase is coming back to the consumer.

Between Covid, minimum wage hikes, sick pay, the ACA…this industry has been through a lot. Restaurants felt like they were laid bare — so they have no choice but to ask their patrons to share in some of that increased burden. It’s not just increased menu prices, although that’s certainly happening. But we’re also seeing service charges, surcharges, and changes to tip policies.

Let’s start with service charges. How are service charges supposed to work, and how do restaurants get it wrong?

Terminology is a big issue. Service charges, surcharges, auto-gratuity — they’re often used interchangeably, but they’re all used differently, and they all have different legal stipulations and requirements.

Service charges are not gratuities. Instead, a service charge is a set percentage that is added to your check. It’s assessed by a restaurant, and it’s placed on the menu like any other menu item. Three things to keep in mind about a service charge:

• It’s should not be negotiable.
• There’s a sales tax placed on it.
• If handled correctly, it is the property of the restaurant.

When you say it is the property of the restaurant, does that mean the service charge does not go to the employees?

Any revenue generated from a service charge is the property of the restaurant, so the restaurant can decide what to do with it They don’t have to pay any of it out to employees, but they can.

This is a key difference between a service charge and “auto-gratuity.” Auto-gratuity is really a misnomer, because the word “gratuity” itself implies that the money left by the patron is left at the will of the patron, and therefore, should be treated as a tip and the property of the employee. But the term “auto” suggests that the money is mandated, and thus, is more like a service charge. Restaurants have used this term for years to refer to a service charge, but as you can see, it is confusing nomenclature, to employees, guests and the courts. I highly suggest as an industry we get away from using this term.

Keep in mind: If restaurants choose to give some percentage of their service charges to employees, those funds must be brought in as wages, not gratuity. That money paid to employees will be treated paid as wages to the employees and will increase their regular rate, for purposes of issues like overtime, meal breaks and the like.

It’s incredibly important for restaurants to be transparent as to how they’re using the service charge. If it’s not going to employees, or if only a small percentage goes to employees, guests need to know that so they can add their own gratuity. It’s wise for restaurants to post those details on their website, menu, etc. Employees should also be made aware, to avoid any claims of uncertainty in litigation.

So, what’s the difference between a service charge and a surcharge?

Like a service charge, a surcharge is a set percentage that’s added to the guest check. Whereas a service charge can be up to 20% of your total bill, a surcharge is usually a smaller amount, say, up to 10%, so as usually not to supplant the tip, but seen as paid to the restaurant in addition to a tip.

These days, many restaurants like to defend the use of adding a surcharge onto their bill by qualifying the surcharge with words like “healthcare surcharge,” or “PPE surcharge.” The use of those qualifiers are fine, but then the restaurant will be limited to using the funds generated from the surcharge solely for that purpose, or risk lawsuits from local attorneys or even district attorneys for consumer fraud lawsuits. For example, starting in 2020, some restaurants instituted “Covid surcharges,” and that money went toward PPE and additional sanitation supplies. Balance the value of adding this language – I’ve suggested just sticking the term “surcharge” and giving yourself more flexibility.

We’re seeing both service charges and surcharge mostly in areas where the minimum wage is going up.

Is there a downside to leveraging service charges or surcharges?

No matter what, patrons will ultimately end up paying for rising costs of goods and services. As opposed to constantly playing with menu prices, service charges and surcharges can be easier to shift around as your business and the market change. And sometimes restaurants think that keeping menu prices stable makes them more competitive, even if it all comes out in the wash.

On the flip side, both service charges and surcharges can blindside patrons when they see an extra charge on their check. And while restaurants are required to communicate what surcharge funds are going toward, service charges aren’t required to have the same level of transparency. Both have led to lawsuits where employers have been accused of misleading employees or patrons or of misusing funds.

That’s why it’s so important to ensure that you’re being completely transparent with both employees and patrons. I.e., be clear about the purpose of the charge, and ensure that the funds are used in that exact manner.

Let’s talk tips. How are tips different than service charges and surcharges, in terms of how restaurants can use the funds?

Service charges and surcharges are predetermined charges mandated by the restaurant, and they belong to the employer. When paid to the employees, they also become wages and can be used to offset minimum wage. Tips, on the other hand, belong to employees — not employers, not management — period. They cannot be retained by the restaurant nor used to offset wages in any manner, although employers are responsible to see that employees accurately report their tips for tax purposes.

Why are we seeing more tip pools (and more lawsuits around tip pools) lately?

Tip pooling requires tip-eligible workers to pool all or a portion of their tips together at the end of a shift. The tips are then redistributed (often equally) among all tipped employees. Employers and management absolutely cannot participate in a tip pool, but restaurants CAN mandate a reasonable tip pool under federal and most state laws.

Many restaurants misunderstand the rules around tip pooling and shy away from it. But in most states, like California, employers are permitted to be actively involved in administering tip pools and tip sharing programs, so long as they follow the rules about who can participate in those tip pools and to what percentage.

Until recently, the rules about allowing back of the house or kitchen employees until a tip pool were murky. However, that rule was officially changed and approved by the Department of Labor in 2018. It’s now allowed in states where there isn’t a tip credit — so, primarily the West Coast. Restaurants are starting to dip their toes into it, and it has become much more popular during the pandemic.

Tip pooling can help to increase earnings of restaurant workers, especially those who might not be as customer-facing — but it can get employers into legal trouble. Million-dollar lawsuits have been filed due to illegal tip pools. Common issues include:

– Management or management employees taking part in the tip pool
– Employees being unclear about the rules of the tip pool (lack of transparency and communication)

Employees and managers wear a lot of hats. What if you’re not tip eligible, but you find yourself performing the duties of someone who is?

There are a few points to consider here…

1. Direct tips: It’s important to note that no matter your title, if you’re tipped directly by a patron, you can keep that money. So for example, a manager can’t accept a tip out from a tip pool — but if a patron hands that manager $20, it’s hers to keep.
2. Putting managers on the clock: Managers often get the short end of the stick. If they leave a tip-eligible role to become a manager, they are working harder for less pay because they’re not receiving tips. When my clients are concerned about their managers getting fairly compensated, I’ll tell them to consider taking managers off salary and putting them on the clock if most of their duties aren’t exempt anyway. So: let them pick up tables and get tips.
3. “Quasi-managers”: Especially at fine dining restaurants, you’ll find a lot of different categories of workers: maître d, sommeliers, table captains, etc. Some of these people may have management duties, and there can be a lot of gray area as to whether these people can receive tip outs from other employees.

In regards to number 3, the guidance is that if the person is acting as an employer in relation to the employee, they aren’t tip-eligible. A few questions to help make that determination:

• Can they hire and fire employees?
• Do they control employee work schedules?
• Do they determine the rate/method of employee pay?
• Do they maintain employment records?

If you answer yes to any/all of those questions, it’s likely they shouldn’t not be allowed to participate in a tip pool or at least receive a tip from a fellow employee.

What would you say to employers who are unsure about their tip and/or service charge policies?

Take the initiative to understand what the laws are in your state and at the federal level. There’s a lot of change happening, and many of these laws vary from state to state (California has its own orbit!) so your policies need to keep pace. It’s never a bad idea to have legal counsel review and bless what you’re doing. And hour or two of review time can help you avoid millions of dollars in litigation.

When you’re putting a policy in place, consider running it by your managers. That’s a great way to get buy-in when you’re making a change to the way you’re compensating your team. And don’t blindside your employees. Be there to answer their questions.

This isn’t as much about compensation as it is about taking care of your employees — but don’t be resistant to technology. The pandemic has helped with that. A lot of employers are becoming more tech savvy. Technology can minimize the volume of work and stress your people are dealing with.

Do you have specific questions about the policies in place at your restaurant? You can reach Beth at bschroeder@raineslaw.com.

Meet Shawn Lalehzarian, founder of The Red Chickz.

Shawn founded his LA-based Nashville hot chicken concept in 2018. Before that, he spent 20 years in hospitality and helped to operate or launch more than 80 restaurants in the U.S. and Canada.

After three years of growth, The Red Chickz recently announced its plans to franchise. The brand’s success has been driven — at least in part — by the splash it’s made on social media. The Red Chickz is nothing of short of a TikTok sensation, with almost 900,000 followers and 17.6 million likes (and counting!).

Shawn recently sat down with Kickfin to talk about the concept, their franchising push, and of course, their rapid rise to TikTok stardom. Plus: he shared his top tips for other restaurant teams looking to achieve social media success.

First things first: How did The Red Chickz get its start?

We did a lot of market research. Nashville hot chicken was already popular, but there wasn’t a hot chicken concept in downtown LA back in 2017/2018. We felt it was the right move at the right time, but we wanted to do it authentically.

So my team and I flew to Nashville for two weeks. We asked everyone — from our Uber drivers to our hotel bellmen to the people we went out with — if they knew anyone who knew how to make hot chicken. A few folks introduced us to family members with their own homemade recipes, so we got to see different versions of it.

It turned out that one of our Uber drivers had a cousin who actually owned a hot chicken restaurant, and we spent the whole day there. Back of house, front of house. They taught us everything from scratch.

We brought what we learned back to LA, added our own touch to make it really unique, and opened in December 2018. We’ve got one location downtown and another under construction in Culver City.

What are your franchising goals?

We always knew we’d expand the concept, but franchising wasn’t originally part of the conversation. We envisioned opening 10-20 locations ourselves, so everything we did from the start, we did it in a way that would be scalable and easy to replicate.

But there was a particular review that sparked this idea to franchise. This guy compared our concept to a large fast-food chain (which will remain nameless here) — and I’m sure he didn’t mean it in the nicest way. That part made me laugh, but then it got me thinking: what if we really did become a giant in the industry?

And now, here we are. Our goal is to go nationwide. We’re starting now with four states: California, Nevada, Arizona and Texas. Then we’ll continue to expand our territory.

Now, for what everyone’s dying to know: Tell us about your rise to social media stardom.

The Red Chickz started out on Instagram like everyone else, and we also joined TikTok. It was relatively early for that platform — in 2018/2019, TikTok wasn’t nearly as popular as it is today.

It took us 6-8 months to get to about 15,000 TikTok followers. Then once we hit 17,000, it just went crazy. If I’m not mistaken, we’re still gaining about 10,000-15,000 followers a week. Our Instagram does well too, but TikTok has completely taken off.

How did you decide that social media would be a key channel for the brand?

I’ve been in the restaurant business for a long time, and I’ve learned a lot about marketing. We knew with the kind of expansion we had in mind, old-school marketing wouldn’t give us the growth we were looking for.

We needed to get in front of people, and we believed that digital marketing — specifically, social media — was the key to getting our product out there fast. You don’t have to wait for print, you don’t have to wait for approvals. It’s immediate.

In recent years, the concept of refranchising has gained steam. Major brands (think: McDonald’s, Wendy’s, Johnny Rocket’s, have made refranchising an important part of their growth strategy.

Refranchising, when executed strategically, can have significant benefits, but it depends on the circumstances. Timing, financials, overall health of the brand, the economy: all of these things can be reasons to move forward with (or hold off on) refranchising.

Read on for a full definition of refranchising, including how it works and why it can be beneficial for some franchisors.

What is refranchising?

In simple terms, refranchising is the sale or transition of stores from franchisor to franchisees.

(Side note: If you’re here, you probably already understand the basic concept of franchising. But just so we’re all on the same page, here’s franchise ownership in a nutshell:

• A franchisee pays a franchisor a fee, as well as an ongoing percentage of sales, for the right to own and operate a franchise.
• Specifically, the franchisee is paying the franchisor for the right to use the franchisor’s trademark and business systems, and to sell its products and services.
• Typically, a franchisor also provides ongoing resources and support to the franchisee — because when the franchisee succeeds, so does the franchisor.

Often, franchisors will maintain ownership of a portion of the brand’s stores. Take Brinker International. Brinker operates restaurants under the Chili’s Grill & Bar and the Maggiano’s Little Italy brands. Many of the restaurants are owned and run by franchisees. But a large number are not franchised and instead are company-owned. In fact, as of 2019, 60% of Brinker’s 1,676 stores were owned and operated by Brinker.)

When a franchisor decides to refranchise, that means the franchisor is selling off the stores it owns to current or new franchisees. They can also do the opposite, where the franchisor buys back franchised stores and transitions them into corporate-run stores. (Brinker did just that in 2019, purchasing 116 stores from franchisees.)

What are the benefits of refranchising?

Under the right circumstances, refranchising can be a savvy growth strategy. There are a lot of advantages to maintaining a small (or even nonexistent) footprint of corporate-run stores.

• Stronger profit margins: Franchisors receive franchise fees and royalties from franchisees, without typical operational and overhead costs — like inventory and paying workers.
• Less earnings volatility: In a franchise model, the royalties paid to the franchisor are typically a percentage of the franchisee’s sales, not of their profitability. That means even if a franchisee’s operations are not incredibly profitable, or profitability varies, the franchisor can still expect a relatively steady income stream.
• Minimal day-to-day management: Refranchising frees franchisors up from having to deal with day-to-day operations, so they can focus on the big picture — like marketing, advertising, and ensuring the success of the overall brand.
• Light capital requirements: Capital expenditures are often passed down to franchisees, decreasing a franchisor’s debt.
• Real estate cash flow: Many franchisors own real estate and lease it to franchisees.
  Stronger performance: Generally speaking, franchised restaurants perform better than corporate-owned restaurants. There could be a myriad of reasons for this (which we won’t delve into in this blog post!).

What are the downsides to refranchising?

So, if refranchising is so great, why would any company choose not to do it? There are definite pros and cons. Most of the disadvantages to refranchising are about control (or lack thereof).

When a company decides to adopt a franchise model, they’re giving up control over a lot of areas, including:

• Day-to-day operations: While franchisors may have systems, processes and templates in place, franchisees typically have a good deal of autonomy. They’re making decisions about inventory, staffing, training, repairs, payroll, etc. That can be beneficial for the franchisor (see above), but it can also create the opportunity for mismanagement.
• Customer experience: When a franchisor chooses to refranchise some or all of their stores, they have less oversight when it comes to the customer experience and become more removed from the market they’re serving.
• Brand management: Similarly, franchisors can also lose touch with the execution of their brand when they refranchise their stores, as they become more focused on the “big picture.”
• Cash flows: Here again, refranchising can be a double-edged sword. When a company maintains ownership of its stores, they have control over all the cash flows (not just fees, royalties and real estate revenues generated).

Some restaurant industry professionals and advisors believe that maintaining corporate ownership of at least some stores helps with franchisee relationships, as it shows the franchisor essentially has some “skin in the game.”

What are the keys to refranchising successfully?

Like any corporate strategy, refranchising can go great, or it can go…well, south. The decision to refranchise should never be a rash decision or an attempt to off-load underperforming stores. Instead, refranchising should happen as part of an organized, well-thought-out program that benefits the entire franchise.

Successful refranchising programs focus on:

• Finding the right franchisee(s): This depends on a lot of factors. How many stores are being refranchised? How big is the geographic footprint? Is this a turnaround situation? In some situations, a “green” franchisee could be a great fit; in other situations, you might require a multi-unit franchisee with extensive operating experience, or someone with access to a significant amount of capital.
• Avoiding overpricing: Some refranchising experts say overpricing is a problem. The focus shouldn’t be on getting the best purchase price; instead, it should be on ensuring the right franchisee is on board.
• Minimizing disruptions: During the handoff process, it’s typically wise to minimize disruptions and maintain status quo — at least in the beginning — in terms of staffing, training, and other operational procedures and processes.

Refranchising can be a very positive move for both franchisors and franchisees. But it isn’t right for every company, even when it is the best move, it comes with pros and cons. Companies that are considering a refranchising program should do it for the right reasons, weigh their options carefully — and when in doubt, consider pulling in a consultant or advisor who can help make the right call.

By now, you’re probably well aware that the American Rescue Plan Act of 2021 has been passed. The Act created a $28.6 billion Restaurant Revitalization Fund (RRF) — which most are viewing as a huge win for the hospitality industry.

Of course, like any piece of legislation, the RRF comes with a lot of fine print. So we partnered with CohnReznick to answer your top questions, clear up misconceptions, and help you prepare.

Not sure if you qualify? Or what you’re entitled to? Or how is this different from the PPP? We cover it all in our Q&A below. Read on!

(Please keep in mind: this does not take the place of legal or accounting advice!)