With the cost of everything from air conditioning to whipped cream rising, many restaurants have been raising prices. LongHorn Steakhouse is passing on part of the tab to its servers.
After Darden Restaurants Inc. bought LongHorn's parent company for $1.19 billion in October, it instituted what it calls “a more disciplined” tip-sharing plan – a policy servers say is cutting their earnings.
Under the program, waiters must give up a greater percentage of their total sales each shift to hosts and bartenders – 2.25 percent, up from 1 percent. So a server who sells $1,000 worth of food and drinks on a Friday night must “tip out” $22.50 to the hosts and bartenders.
The company's focus on tip sharing comes as restaurants scramble to trim expenses as customers eat out less and food prices climb. Adding to costs is a scheduled increase in the federal minimum wage, from $5.85 an hour to $6.55 on Thursday.
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“A lot of employers are asking how they can get their hands on part of their waiters' tips to offset labor costs,” said Paul Paz, an Oregon waiter who runs the Web site waitersworld.com.
LongHorn's tip outs, which allow the company to pay bartenders and hosts a lower wage, were one factor helping Darden, one of the nation's largest restaurant companies, shave labor expenses as a percentage of sales by 0.6 percent in the fourth quarter, the company said in its latest earnings call.
The policy helped “offset wage pressure inside the restaurant,” Darden President Drew Madsen said on the call. “It's a more disciplined tip share program than they've had in the past and as that progresses and we see results of that more broadly in more restaurants, that's something we can look at in all of our restaurants.”
Darden has 1,702 restaurants; its chains include Olive Garden and Red Lobster.
Several LongHorn servers, speaking anonymously because they feared losing their jobs, say the policy has cost them money.
Darden defends the practice, saying it hasn't raised prices or shrunk portions, as other restaurants have.
“Our customers come to us for value,” said spokeswoman Phyllis Hammond.
Other chains are finding savings elsewhere; Bob Evans cut its workers' hours by a total 2.6 million for fiscal 2008.
“When you're seeing minimum wage increases like we're seeing now, a restaurant really has two options: raise prices, which no one wants to do, or reduce labor hours, which is what we did,” said Dave Poplar, a spokesman for Bob Evans.
Despite the pressures, restaurants are still hiring. The Bureau of Labor Statistics said restaurants and bars added 16,000 jobs in June.