Eye on Hospitality: Commission Pay – A Road Less Traveled

Eye on Hospitality: Commission Pay – A Road Less Traveled

By Paul Schlienz

The restaurant industry’s compensation models are rapidly changing. With increasing costs in the form of rising minimum wages and other factors, restaurant operators are experimenting with new approaches in compensation for employees including service charges, surcharges, bonuses and commissions.

Commissions for the front-of-house are rarely discussed as a model because, according to Rick Braa, principal at AMP Services, this approach has been so little used that we have very limited data on it. Nevertheless, some restaurants are trying it out. One such eatery is Packhouse Meats, in Newport, Kentucky.

Packhouse Meats’ servers make a minimum wage of $10 an hour. Additionally, they can earn 20 percent of their sales in commissions based on factors including sales volume and quality of service, if its higher than the basic wage. Thanks to this commission system, on an average, Packhouse Meats’ servers make $15 an hour.

“Ten dollars an hour becomes a safety net,” said Bob Conway, owner of Packhouse Meats. “When you come in and it’s dead, or you’re working through the middle of the afternoon and we don’t really have any business, that $10 might kick in.”

High on Conway’s mind in instituting the new commission model at his restaurant was a desire to “protect the servers, and by protecting the servers, reduce turnover,” which can be a significant monetary drain on restaurants.

So far, the results have been good – Packhouse has seen no turnover under this system that wasn’t due to terminating employees who failed to meet the requirements of the job.

“None of the servers are leaving because they’re not making enough money,” Conway added. “If we’re paying our servers well, we can get high-quality servers, and if you have high-quality servers then the quality of service is better.”

Under Packhouse Meats’ commission system, while the amount of money customers spend remains the same, the price of food has risen to cover the higher cost of labor, although this is not a full 20 percent increase.

If you are interested in considering commissions as a compensation model for your restaurant, there are some things to keep in mind.

According to Braa, “Employees may be paid 100 percent commission. If commission is paid more than 50 percent of total wages and 150 percent of the minimum wage, overtime isn’t calculated. Commissions on goods and services must be greater than 50 percent of earnings. If the employee is paid entirely by commissions, or draws and commissions, or if commissions are always greater than salary or hourly amounts paid, the ‘greater than 50 percent commissions’ condition will have been met. If the employee is not paid in this manner, the employer must separately total the employee’s commissions and other compensation paid during the representative period.”

Braa adds that “The total commissions paid must exceed the total of other compensation paid for this condition to be met. The regular rate of pay must be more than one and one-half times the minimum wage. To determine if an employer has met the ‘more than one and one-half times the applicable minimum wage’ condition, the employer may divide the employee’s total earnings attributed to the pay period by the employee’s total hours worked during such pay period. If the result is greater than one and one-half the statutory minimum wage, this condition of the exemption has been met.”

Categories: News Room