(copied from a comment I made on another post)
The average per-person cost at, say, Olive Garden is $20 according to this website, and the average time spent occupying a table is one hour.
Assume you have a party of 4. That's an $80 check, and a $16 tip. If you have 6 tables at once, that's $96. Average dining time for a party is one hour, so you're making $98.13/hour (96 in tips plus the legally mandated $2.13 “tipped minimum”). (And, by the way, if 3 of the 6 tables stiff you, you've still made $50.13/hr. But we don't want you to have to depend on tips, and we don't want to have feel obligated.)
Your boss pays you $2.13/hour, so for that hour you're making $2.13 from the boss, $5.12 from the tables (that your boss gets 'credit' for having paid you) and $10.88 in net tips. You get 1/3 taken for taxes, which wipes out the $2.13 and you get a zero paycheck. No problem, that's good.
If your boss raises your pay to $7.25, he'll have to raise the cost of an average person's check by $0.21: An increase of 5.12 for the hour, divided by the 24 customers you served in that hour, and you'll still have to hustle for tips.
If your boss raises your pay to $25/hour, he'll have to raise the cost of an average check by $0.96: That's an increase of $22.87 on your hourly rate for the hour, divided by the 24 customers you served. This isn't an unfair pay rate for a server, but it's not what you're making now. So let's go bigger.
If your boss raises your pay to $48/hour, he'd have to raise the cost of an average check by just $1.91 (that's an increase of 45.87/hour above your 2.13 rate you currently make, spread out over each of the 24 customers you serve in an hour. Oh, you're still not making 120/hour at this. OK, then…
If your boss raises your pay to 120/hour (That'll never happen in a million years, but let's just say he does) that's an increase of $4.91 per check. (A raise of 117.87/hour, dividing that over the 24 people you serve in that hour works out to $4.91). Your customer sees a net increase of just $1 more than they're paying now for check + tip. If he raises prices by $7/person, customers will think it's about $2 more than before, and your boss makes an extra two bucks per person. That should be enough to cover slower periods. And if he raises prices by $7/person and pays you $50/hour he's going to see an increase in his income of $5/person, or $20/table, and be able to cover unexpected slack periods. I say unexpected because, if he knows it'll be slack, he won't have people working, right?
That's how it works in most of the rest of the world. And most of your customers would be thrilled if that's how it worked here. $120/hour in tips is pretty unusual, I'd think, for your average Applebees/Olive Garden/Ruby Tuesday/Mom-and-pop restaurant like most servers work in.