To some, it’s as American as apple pie, but the controversy surrounding the tradition of tipping at restaurants is heating up across the nation. Believe it or not, the biggest push to eliminate tips isn’t coming from employees or consumers, but from select restaurant owners themselves.
In the past few months, two major restaurant groups have announced their plans to transition to a no tipping model at their establishments, and the industry is in an uproar about the ramifications.
Danny Meyer, CEO of the Union Square Hospitality Group (which manages 13 restaurants nationwide, including celebrity chef Tom Colichio’s Craft), has committed to factoring in the cost of hourly wages for his serving staff into menu prices — and removing the blank line that normally rests below the total on your check for a tip. Craft, in fact, has already begun piloting the change with its lunch service, upping its prices to cover wage increases for all staff and strongly discouraging tipping.
Likewise, Raymond Blanchette, CEO of Ignite Restaurant Group that manages 130 locations nationwide (including Joe’s Crab Shack), has already eliminated gratuities in 18 restaurants across the country and is considering a full roll-out pending results of the trial.
Front-of-house employees at the selected restaurants now earn hourly wages of between $12-$14 an hour, providing what Blanchette refers to as a “significant wage” to his servers. What he hopes to see is a work force that responds to a more stable income and a customer base that will appreciate a slightly less expensive, but more valuable, experience.
Why the push for no tipping policies now? There are more than a few factors driving the conversation — and inevitable debate — over doing away with the American standard of restaurant transactions. But more than any other, the national discussion on minimum and living wage certainly has accelerated the question, with a local law in Seattle already implemented for restaurants this year and one in New York City pending.
On the national stage, the debate for increasing the minimum wage to $15 an hour has seen vocal support from labor unions and some lawmakers, even though the President (and the National Restaurant Association) has expressed concerns over what a drastic hike in wages could do to bottom lines in multiple industries. While the “Fight for $15” has seen greater support in coastal areas and cities with high cost of living like Chicago, debate will likely rage (and remain unresolved) through the 2016 Presidential campaigns.
One distinction that’s important to make is between no tipping policies and auto-tipping, an alternative policy that has also gained some amount of traction in 2015. Auto-tipping has long been a practice for upscale casual and fine dining restaurants to ensure adequate compensation for staff serving parties of six or more. Establishments will add 18 percent (or another set amount) to the total bill and allow for additional tipping, in order to secure a minimum amount for front-of-house staff serving larger parties.
However, auto-tipping doesn’t change base pay structure for staff, whereas no tipping involves increased wages and increased menu prices — although it often works out to be the same or less for consumers than the previous price plus gratuity. To the customer, the difference is negligible, but to servers and their employers, the difference is considerable in how income is tracked and allocated.
What’s the impact for restaurants of no tipping?
The consequences this model, long established in the European restaurant industry, may have for American businesses are still unclear, but early positives and negatives can be assessed for customers, servers, and businesses themselves.
Customers today are fairly divided on the practice, with 56 percent of New Yorkers surveyed stating that they would be unwilling to pay an extra 20 percent for their meal if it meant eliminating tipping. Oddly enough, those polled were overwhelmingly in favor of increasing wages (and food costs) at quick service restaurants where tipping isn’t typically an option.
So, why the dividing line for these consumers regarding fair wage and tipping, especially if it means little to no difference in the final cost of the meal? There is a consumer perception that removing gratuities leads to lower quality service, as they may believe that the incentive to perform is housed in the server’s tip. But is quality of service really the defining factor in how large a tip a customer will leave?
Cornell University says no. In a study published in 2006, the university identified cultural differences and biases as having a much stronger effect on the amount tipped at full service restaurants. And that’s a problem for servers who want to be treated fairly and compensated for their hard work directly.
But the opposite is true with a no-tipping scenario as well. Employees who do not perform as well as their server colleagues — who do the minimum amount of work or are less customer-focused — end up compensated the same as those who go above and beyond in a no tipping scenario.
And in proposing a minimum wage for servers, the potential to earn less with a flat salary is very real, particularly for those who have worked in the fine dining market for a large period of time. A shift toward lower pay for in-demand, experienced staff could present a labor challenge for restaurant owners. How can you attract great people if you don’t have the potential for tips as leverage? What do you replace that incentive with?
Ultimately, every restaurant owner (and manager) will have a laundry list of concerns to address when considering a switch to no tipping at their establishment. How will customers react to increased menu prices? Do you match take-out prices to those for dine-in or maintain delivery at a lower rate that doesn’t account for server wages? Will you need to scale back on staff at slow times to make the most of your financial resources? That produces a lot of risk for restaurateurs if a shift that’s normally light on customers experiences an unusual influx or a few larger parties.
Putting servers on a standard hourly wage can help balance resources between front and back of house, particularly as kitchen staff have seen proportionally less increases on average in the last two decades and cannot (under federal law) participate in pooled tips.
Certainly, restaurant owners would be able to manage all of their staff on the same financial system in a no tipping/flat wage scenario. But managing that transition in your payroll system — while accounting for the new tax structures (for your business and your employees) and outlaying more in weekly payroll out of pocket — is a formidable task while also maintaining day-to-day operations. Seeking help from a financial advisor or payroll consultant to get your system in line may make the difference between a smooth transition and disruptive change fraught with long term financial and tax repercussions.
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