Wages: No More Tipping?

The Tipping Tango

The tipping tango is a dance American diners know by heart. It starts when your meal has concluded and the server brings the bill – then you hesitate, pen in hand, as you try to decide which percent of the bill seems like a fair tip.

A number of factors may impact the amount you tip your server, some of which – Was your food undercooked? Was it raining that day? – are unrelated to how well the job was done. Many Americans, knowing their servers depend on tips to make a decent living, will sigh and calculate 20 percent regardless of how the meal made them feel. Some decide to voice their displeasure by leaving no tip at all, and others are fundamentally opposed to tipping in any case.1

Although patrons and servers alike are accustomed to this often uncomfortable and controversial part of dining, some restaurateurs have recently grabbed headlines by participating in the movement to end tipping in restaurants. Eliminating restaurant tips in favor of paying tipped and non-tipped employees higher wages isn't actually a new idea, but the movement is now getting more support from recognizable names and national chains than ever before.

America the Beau-tip-ful

If you don't like having to tip your servers, you can blame America's tipping problem on Europe – and on the wealthy Americans who brought the practice back with them during the late 19th and early 20th centuries.2 However, while tipping around 20 percent is now as American as a cheeseburger, restaurant tips in Europe are generally only expected to be between 5 and 10 percent if they're expected at all.3

That's largely because, in America, most states permit restaurant owners to use a tip credit. This allows for the tipped minimum wage – $2.13 – to be lower than the federal minimum wage – $7.25 – that must be paid to non-tipped workers,4 making the gratuity added at the end of a meal a necessary part of a server's wage, rather than a bonus for excellent service.

Tipping Points

If employees' tips do not end up meeting the non-tipped minimum wage, their employer must, like any business owner in any other industry, ensure they receive one by paying the remaining amount. Because the wages they're responsible for paying can vary wildly each week, restaurant owners cannot accurately predict what their payroll expenses will be – just as tipped employees cannot accurately predict their pay each week.

The traditional system of restaurant tips can also lead to competition between servers for better sections, resentment among staff due to differing tip yields, and tip skimming lawsuits brought on by current and former employees.5 Because back-of-house employees are generally not eligible for the tip pool or end-of-shift tip outs, the wage disparity between cooks and dishwashers and the front-of-house staff can also create dissent among employees.

As a server, large tips are also often a game of luck rather than something employees can be given based on seniority or merit. Michael Lynn, a professor at the Cornell University School of Hotel Administration, conducted research on tip levels and service that showed the quality of service a table receives doesn't necessarily correlate to the size of the tip given.6 For example, performing actions that are ultimately arbitrary to the service level – such as forecasting pleasant weather, calling customers by their names, and wearing a unique accessory – can increase a server's tip.

Tip size may also be negatively impacted by a server's gender and race. Research published by Restaurant Opportunities Centers United (ROC United) concludes that, among other issues, "the ambiguity of the tipping system, where the outcome is believed to be dependent on the social encounter between server and customer, has been found to promote discrimination based on social stereotypes from both parties."7

Tipping Alternatives

The list of restaurants participating in the movement to end tipping continues to grow, but there isn't yet a standard replacement system. Because a service charge added onto the bill at the end of a meal cannot usually be legally distributed among back-of-house staff, most restaurateurs who've eschewed the traditional tipping system have turned to raising menu prices and offering the following compensation methods:

Raising menu prices to pay employees a higher base salary. In 2014, Amanda Cohen, chef and owner of Dirt Candy in New York City, authored a column for Eater discussing her decision to eliminate tipping, a practice she determined wasn't helpful to either servers or restaurants.8 "On menus across the city," writes Cohen, "food should cost more than you're being charged, but tipping is a form of price partitioning that allows a restaurant to disguise some of its labor costs as a 'voluntary' tip."

Today, Dirt Candy's prices have been raised 20 percent, allowing it to abandon a 20 percent charge that was included on the bill at the end of the meal. "Your meal still costs the same amount of money," says Cohen in the Dirt Candy FAQ, "only now instead of hiding 20 percent of the cost of your meal as a 'tip' or 'admin fee,' it's right there in plain sight."9 Cohen uses the guaranteed revenue from these adjusted prices to pay all of Dirt Candy’s staff – including dishwashers and cooks – higher salaries.

Raising menu prices to pay employees a higher base salary plus a percentage of revenue. In late 2015, Union Square Hospitality Group (USHG) announced it would begin the process of gradually eliminating tipping at its 14 restaurants in New York City, including Michelin-starred The Modern and Gramercy Tavern. "We believe hospitality is a team sport, and that it takes an entire team to provide you with the experiences you have come to expect from us," Danny Meyer, an executive with the group, wrote in a letter announcing the change.10 "Unfortunately, many of our colleagues — our cooks, reservationists, and dishwashers to name a few — aren’t able to share in our guests’ generosity, even though their contributions are just as vital to the outcome of your experience at one of our restaurants." To ensure servers continue to make a comparable or even improved salary under the no-tipping system, USHG employees take part in a revenue sharing system on top of their wages.

This no-tipping model isn't limited to NYC hot spots: TKO, a Chinese-influenced Southern restaurant in Nashville, Tenn., also utilizes a system that pays employees an hourly wage plus a percentage of revenue. "It gives everyone an incentive to be busy and creates a team atmosphere and that’s really what we want," owner Ryan Bernhardt told Nashville-focused digital platform Noble before the restaurant opened.11

Paying higher wages by adding a service charge. Instead of accepting tips, Comal, a restaurant in Berkeley, Calif., adds a 20 percent service charge to every bill.12 According to the restaurant's website, "Our previous compensation structure… was such that the only people seeing raises from recent minimum wage increases were service staff who were already at the top of our pay scale when tips were factored in." California does not have any laws against service charges, so there do not appear to be any legal issues regarding the distribution of this revenue between both back- and front-of-house employees. The pay scale at Comal correlates to merit, but employees also receive compensation from a revenue share system.

No Tips, Mo' Problems

Some restaurant owners have had to abandon the no-tipping movement – at least for now. Chef Cara Stadler, owner of two Asian restaurants located in Brunswick and Portland, Md., also had to revert to a traditional service model several months after implementing a gratuity-free menu.13 According to the Portland Press Herald, Stadler's restaurants lost a handful of employees after announcing the change to a no-tip system. However, it was ultimately abandoned because customers were unhappy with the higher menu prices, which were implemented because Maine laws prevent the use of a service charge.

Joe's Crab Shack was the first national chain to announce a tip-free service model, which was tested in 18 of its locations.14 The restaurant chain adjusted menu prices in those locations and did not add a service charge, but rolled back the policy in all but four locations in response to customer dissatisfaction at no longer being able to tip.15

The gratuity-free service models that are currently being experimented with may not work for every concept or location, but it's unlikely that the movement to end tipping in the restaurant industry will disappear anytime soon as restaurateurs continue to seek solutions to the restaurant industry issues that affect their employees.

This article was originally published in August 2017. During the COVID-19 pandemic, the Union Square Hospitality Group announced a return to tipping, ending its five-year tip-free policy.16 "We've come to believe that it’s the inability to share tips that is the problem, not the tips themselves," Danny Meyer said in a statement. "Our ultimate goal is for your tips to be shared among our entire team, so both kitchen and dining room teams can benefit when a guest has a great experience."

References

  1. Why I Don’t Tip Servers. Medium. Accessed November 2021.
  2. When Tipping Was Considered Deeply Un-American. NPR. Accessed November 2021.
  3. Tipping in Europe – What You Need to Know. Europe Up Close. Accessed November 2021.
  4. Tipped Minimum Wage Laws by State 2021. Minimum-Wage. Accessed November 2021.
  5. Mario Batali Settles Tip Lawsuit For $5.25 Million. Huffpost. Accessed November 2021.
  6. Report Reveals Racial, Gender Inequities in Seattle Restaurant Industry. Puget Sound Business Journals. Accessed November 2021.
  7. Racial and Gender Occupational Segregation in the Restaurant Industry. Restaurant Opportunities Centers United. Accessed November 2021.
  8. Amanda Cohen on Why Tipping Is a Devil’s Bargain. Eater. Accessed November 2021.
  9. Dirt Candy FAQ. Dirt Candy. Accessed November 2021.
  10. Danny Meyer Is Eliminating All Tipping at His Restaurants. Eater NY. Accessed November 2021.
  11. TKO, Nashville’s First Restaurant to Adopt a No Tipping Policy, Opens Oct. 5. Eater Nashville. Accessed November 2021.
  12. Service Charge FAQ. Comal. Accessed November 2021.
  13. No-tipping Experiment Fails at Two Popular Maine Restaurants. Press Herald. Accessed November 2021.
  14. Joe's Crab Shack Is the First Major Chain to Drop Tipping. Eater. Accessed November 2021.
  15. Tipping Back at Joe's Crab Shack. Huffpost. Accessed November 2021.
  16. A Return to Tipping, But Let Them Be Shared. Union Square Hospitality Group. Accessed November 2021.