Incentive program allows restaurants to pay workers’ tips as well as wages

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The enactment of a new $ 2.2 trillion stimulus package by President Trump last week is offering small businesses a lifeline in the form of over $ 300 billion in zero-interest loans, some of which can be forgiven.

The loans, intended for companies with less than 500 employees, could have a particular impact on the restaurant sector, which employs 15.6 million Americans. Seventy percent of the country’s million the restaurants are individually, and 90% have fewer than 50 employees, according to the National Restaurant Association. Thousands of establishments have been forced to close and lay off many of their employees. The association believes that the industry will take a blow of 225 billion dollars because of the pandemic, and that between five and seven million restaurant workers could lose their jobs by June.

The stimulus package creates the Paycheck Protection Program, which provides eligible small businesses with government-guaranteed loans that can be canceled if the businesses meet all the requirements. The loans, which are designed to encourage businesses to keep their employees on the payroll, can be used for expenses such as payroll, mortgage and rent payments, and utilities.

Especially for the restaurant industry, the money can be used to pay any kind of employee compensation – including the equivalent of tips in cash.

Cash tips are a huge part of restaurant employee income

Many restaurant workers rely on cash tips to make ends meet. The the average hourly wage for restaurant workers is $ 12.49, or less than $ 26,000 per year, according to the Bureau of Labor Statistics. In New York, the the minimum wage is $ 15, which can be broken down into a $ 10 cash salary plus a $ 5 tip credit for food service workers.

Alex Lynch, a captain of the NoMad in Manhattan who was put on leave earlier this month when the restaurant closed, recently told Business Insider that his tips could more than triple his net hourly pay.

restaurant server

A waiter delivers food to a table at a Chicago restaurant on March 16, 2020.

REUTERS / Joshua Lott


Paul Einbund, owner of the upscale New American restaurant The Morris in San Francisco, said the provision specifically mentioning cash tips is the most important part of the stimulus bill.

“I don’t think I’m taking a risk saying that the vast majority of small restaurant owners worry more about their staff and patrons than the business right now,” Einbund told Business Insider.

Einbund, who had to lay off nearly all of its 20 employees but kept his restaurant open for curbside pickup, said it was crucial that restaurants get those funds as quickly as possible.

Survival for most of us is not knowing that the funds might come, but getting the funds so that we can start to distribute them, ”he said, adding that it was“ overwhelming ”. not being able to pay the staff and the vendors.

Treasury Secretary Steven Mnuchin said in an interview with Fox Business Network on Monday that he expected the loans to be available from Friday.

Employers who have already laid off workers can still apply – if they rehire their employees

Restaurateurs like Einbund, who have already had to lay off the majority of their employees, may still be eligible for the full loan amount – as long as they rehire all of their full-time employees by the end of June.

But as Eater’s Ryan Sutton reported, that may not be feasible for restaurants which already barely keep their heads above water.

Another form of help that restaurateurs can ask for is the payroll tax relief program. The program allows employers who continue to employ workers during the coronavirus crisis to defer their social charges so they can continue to pay these employees, as Business Insider’s Jennifer Ortakales and Bartie Scott recently reported.

Employers can apply for either the Small Business Loan or the Payroll Tax Relief Program – but not both.

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