After six successful years in business, Logan Square hotspot Fat Rice is taking a calculated risk: Starting next week, it will add a 4 percent surcharge to all customer checks to help pay for employee health insurance and boost the wages of kitchen staff.
Fat Rice's decision is the latest in a small but growing movement among Chicago restaurants to bring health benefits to an industry notorious for not offering them, a trend advocates say is necessary if restaurants are to maintain stable workforces amid surging competition.
The decision to add a separate line item to customer checks to help fund health benefits, a method that has been tried with some success at other restaurants, came after careful consideration, the owners said.
"This is a massive risk for us," said Fat Rice chef Abe Conlon, who opened the Macau-inspired restaurant with business partner Adrienne Lo. "But hopefully we are established enough that we are able to do this without major hiccups."
While large restaurant groups like Lettuce Entertain You and Boka Group offer health insurance to hourly employees, the benefit is uncommon among smaller, independent restaurants operating on thin margins and without an administrative staff.
Bob Goldin, a partner at Chicago-based food industry consulting firm Pentallect, said restaurants are going to have to start offering health care benefits to attract and retain employees, and those that don't are going to be at a significant labor disadvantage as Chicago's restaurant scene continues to grow.
But Goldin doubts adding a surcharge to pay for the perk will be received well beyond a few neighborhood restaurants, as many customers will view it as another tax and balk.
"I just don't see it spreading," he said. "Consumers are sympathetic with the situation, but by and large the attitude is 'You pay them, why should we?'"
The surcharge is already common in Los Angeles and San Francisco, and in Chicago it is being implemented at a growing number of popular haunts in the progressive bastion of Logan Square.
The restaurant Giant pioneered the concept locally last year when it added a 2 percent surcharge to customer bills to cover part of the cost of offering employees health insurance, and nearby restaurants Daisies and Bixi have since adopted similar models. Dos Urban Cantina, also in Logan Square, plans to follow suit in the first quarter of 2019.
"We're family, we want to take care of each other," Dos Urban chef and co-owner Brian Enyart said, adding that he wouldn't be able to afford health benefits for his 25 employees without the surcharge.
Fat Rice's 4 percent "hospitality provision" fee is meant to cover a portion of health insurance for all 40 of its employees plus raise the wages of kitchen workers, who currently earn less than half of what tipped servers earn even when they work longer hours, Lo said. The goal is to raise hourly wages for kitchen staff, such as dishwashers and cooks, by at least $3 an hour, while still allowing servers to collect tips.
"We want to minimize wage disparities between front- and back-of-house," Lo said.
The fee, which will be attached to checks not only at Fat Rice's restaurant but also at its neighboring bakery and cocktail lounge The Ladies' Room, will be explained on the menus and servers will be trained to explain it to customers.
Unlike at some restaurants, the charge will not be optional, though if a customer raises a stink it will be removed.
"If someone is that upset about it, truthfully, that's not the kind of guest we are interested in serving," Conlon said.
To ease the sticker shock, Fat Rice will adjust the standard suggested gratuity listed on checks to read 16%/18%/20%, rather than the 18%/20%/22% guests currently see. The owners expect most customers won't mind paying an extra $4 on a $100 check if it is benefitting employees. None of the money will go to ownership wages or investor dividends, they said.
There is debate in the restaurant community about whether a surcharge is the wisest way to pay for improved working conditions, but Conlon and Lo said they weighed other options and determined this is the best route.
Raising prices would not have helped narrow the pay gap because it would have led to higher tips for servers. Sharing tips with kitchen staff wouldn't have addressed health insurance. Removing tipping and imposing a service charge to distribute among staff might have angered servers if their earnings fell.
And with 5 percent profit margins, most of which goes back into the restaurant, they couldn't afford to absorb the $120,000 additional annual cost that higher wages and benefits would cost.
Yet something had to change because employees were leaving for higher-paying jobs, and 95 percent of its staff had no insurance.
"With rising costs on all fronts, we are taking a holistic approach for the longevity of our business and the people we employ," Conlon said.
Giant chef/owner Jason Vincent, who introduced his 2 percent "employee health insurance" surcharge a year after opening his restaurant in 2016, said the response from customers has been overwhelmingly positive. He has received only two negative comments about the charge, which is explained on the menu and described as optional. Customers never opt out, he said.
"Up front and honest is the way to do it," Vincent said.
Still, as he plans new restaurants, he fears adding the surcharge out of the gates will alienate fickle customers. He hopes that soon everyone has a health surcharge so customers become used to it.
Vincent spent many years working in kitchens without access to health insurance and knows what a difference it can make. He has bad psoriasis and for years couldn't treat it.
He doesn't know if offering health benefits is a reason for the low turnover at Giant, but is confident it has improved the lives of employees and the work environment.
All 25 of his employees purchase Giant's health insurance plans through Blue Cross Blue Shield, and the surcharge covers about a third of the cost. Employees pay $100 a month for health coverage and the restaurant absorbs the rest.
Insurance broker Rosanne Boik, who specializes in hospitality clients, said she has seen a rise in small restaurants seeking group health insurance plans over the past three or four years. It's not as expensive as many think, costing about $3,800 per month for one restaurant client with about 15 employees interested in taking part, but even that can be a lot of money for small operators who pay half of the premium, Boik said. She applauds the idea of adding a customer surcharge to pay for it.
"They can't just keep jacking up their prices on food," Boik said.
Though the Affordable Care Act requires employers with at least 50 full-time equivalent employees to provide a group health plan, people working for smaller employers are left to buy their own insurance on the marketplace. But group plans tend to have lower deductibles and more stable rates than individual plans, making it a preferable option, Boik said.
Some restaurants introducing health benefits for workers are avoiding the surcharge and opting instead to raise prices.
At Loop bar and restaurant Slightly Toasted and nearby Little Toasted, partner Tyler Mendoza plans to bump menu prices up by 25 cents and add a small blurb explaining that it helps cover the cost of offering health insurance. Mendoza, who hopes to launch health benefits by the end of the first quarter of 2019, said "the companies that do it sooner will be able to attract and retain staff better."
Raising prices "won't be quite as divisive" as imposing a surcharge, which can make people feel like they're paying more, he said.
Ryan McCaskey, chef/owner at Acadia in the South Loop, started offering health insurance to his employees two years after opening his upscale restaurant in 2011, and built it into the menu price. It helped that he had just received his second Michelin star, which changed the expectation of how much his food should cost. An eight-course meal at Acadia is $175 per person, which allows him more wiggle room to absorb costs.
Still, only about 20 percent of his employees purchase health insurance through Acadia, which he thinks is because many are young and still on their parents' insurance. McCaskey also closes the restaurant for a week after New Year's and for couple of weeks during the summer, giving employees paid vacation time.
"I think other parts of life are important and I don't think we do it enough in the restaurant industry," he said. "There is so much time and sacrifice, and I want people to have a life too."