The hospitality industry experienced massive upheaval during Covid, necessitating quick pivots in order for establishments to stay in business. Many businesses were forced to close; others are still getting back on their feet. While “to go” and delivery options helped establishments stay afloat and keep some staff employed during this stressful period, the road to recovery has been dotted with challenges, including how to handle employee wages and compensation.
Post-pandemic there was a dearth of employees, which required businesses to implement changes, such as higher wages, changes in tip allocation, and benefits like health insurance and retirement plans.
The James Beard Foundation’s 2025 Independent Restaurant Industry Report found that 92% of those companies who responded to queries said that they increased wages in 2024, compared to 84% of companies that did so in 2023. Further contributing to minimum wage increases are various laws that have been mandated by multiple states. For instance, California’s 2024 FAST Act, which went into effect in April 2024, requires fast-food employees to be paid a $20.00 minimum wage, up $4.00 from the prior $16.00.
The James Beard Foundation Report notes that one of the motivators among independent restaurant owners for increasing wages is the continued “difficulty in hiring and retaining high-quality staff.” This is compounded by “a fundamental shift in workforce expectations, with employees seeking both higher compensation and enhanced quality of life benefits.”
Along with the benefits mentioned above, other offerings could include innovations like cross training and flexible work schedules. Anu Apte, co-founder of bar group Canoe Ventures in Seattle and a United States Bartenders’ Guild (USBG) Board of Directors member, has noticed that improved wages and compensation result in positive results, “If everyone is happy and healthy, the business will also be happy and healthy.” Among the benefits she has offered for a number of years are health insurance, dental, vision, and life insurance.
In its latest Restaurant Trends Report, Toast, a payroll & team tanagement platform, which is used by roughly 134,000 establishments, found that hourly wages specifically for full-service, back-of-house employees averaged $16.98 as of December 2024, 2.5% more than December 2023, and 6% more than end of year 2022. Unfortunately, these workers may or may not receive tips depending on local laws.
It is difficult to argue against fair compensation for both front- and back-of-house staff. Bo Shuff, Executive Director of the USBG, notes that, “Paying a living wage should not be viewed by employers or legislators as optional.” Echoing Apte’s observation, he also points out that “morale goes up when employees feel valued by their employer.”
This not only goes a long way to enticing and keeping employees, but also to raising the bar on the customer experience. The James Beard Foundation supports this fact, finding that “higher wages and benefits correlated with improved business performance.” Likewise, the report noted that “those [businesses] who offered career advancement opportunities in 2024 had 1.2x less difficulty finding staff and 3.5x less difficulty retaining staff.”
Along with offering a living wage, employers have needed to find new ways of approaching the tipping landscape as gratuities often are a major supplement to income. Toast found that there are multiple issues affecting the state of tipping. These include everything from “prices, people being more conscious about their discretionary spending, changes in minimum wage laws, and being asked to tip at more establishments than previously.” Other factors include a trending decrease in alcohol consumption in newer generations, as well as an evolving view of when and where to dine out; fewer customers, and often fewer regular customers, affect the business at large.
Indeed, over the past five to 10 years, tipping formulas have undergone a quantum shift, resulting in what is often referred to as “tip-flation.” According to a 2023 Pew Research Study, roughly seven-in-ten adults have noticed that “tipping is expected in more places today than it was five years ago.” Moreover, customers are frustrated with automatic service charges (sometimes followed by a separate line for an additional gratuity), which have become the norm in many establishments. Likewise, 40% of guests dislike the suggested tipping amounts now printed on many bills. All of these changes have confused many customers as to what the norm and/or expectation for tipping is, which in turn affects employees.
Toast data, collected from tip amounts added to a check when using a card or digital payment (not cash), showed 2024 third quarter tips as averaging 19.3% in full-service locations and 15.8% at quick-service spots. The latter was down from 16.5% during Covid when people tended to tip more as a show of support for the hardships felt in the hospitality industry.
In 2024, per Toast, 53% of consumers said that more fast casual establishments suggested gratuities, often via tip screens, which had not existed in years prior. In other cases, notes Toast, “some restaurants impose percentage-based fees on their menus to help compensate [back-of-house] employees when business gets busy.” All of these tipping solutions have supporters and detractors, but the fact remains that employees have more possibilities for additional income with these options.
View a map of tipping across each state here.
Apte now uses a “service charge model” where each bill includes a 20% service charge, as well as an optional additional tip line. “Employees get 100% of the additional tip and at least 50% of the service charge,” she explains. “The 'house' keeps the remaining service charge to pay for employee benefits. If you look at this model, you'll see that it does not mean the business is making any more money than last year to cover higher expenses.”
There is a delicate balance right now between the cost of doing business and the cost of dining out. Employers are faced with multiple challenges in order to retain quality staff, while also providing their customers with an experience that is worth the money. Employees are looking for more opportunity, both monetarily and in terms of quality of life. This affects the bottom line for everyone.
Despite these pressures, Apte takes a hard line when it comes to looking out for one’s staff. “Honestly, there is no good reason for any employer to not offer these benefits," she says. "If you can't take care of your team, you shouldn't be in business. Make it work.”
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