Federal law requires employees earn at least the federal minimum wage, or the higher state or local number in 28 states and 55 municipalities. If the combination of the base wage and earned tips does not total the required minimum wage, the employer must pay the tipped employee more to make up the difference. Sunil Dharod, who owns 124 restaurants across four states, including Applebee’s locations, Sonic Drive-In stores and the Roy’s fusion chain, said he expected higher wages would lead to menu price increases and reduced service. In this podcast, Professor Joe Calhoun talks about how incentives drive behavior. He relates incentives of wait staff to make more money. Good service leads to better tips. So, servers are incentivized to provide great service to customers. The tip model of compensation and the commission model of compensation for servers and bartenders is a way to drive better customer service, higher sales and higher compensation to the servers and bartenders.

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