RESTAURANT INDUSTRY INSIGHTS

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Imagine the last time you went out to eat. When your server cleared your plates and returned with your check, you probably started calculating a tip without even thinking about it. Tipping is now just an automatic step in restaurant experience (and has arguably improved our mental math skills a bit!)

The origins of tipping can be traced at least as far back as the Roman Empire. Wealthy Americans brought tipping to the states from Europe in the 1850s so that they could show off their knowledge of European customs. And the rest is history.

While tipping has been phased out in Europe in favor of a hospitality-included model, tipping is now as American as apple pie. However, over the past few years, some restaurateurs have begun chipping away at the well-ingrained cultural norm by banning tipping at their restaurants and instead absorbing service charges into menu prices (once again taking a cue from Europeans).

Celebrity restaurateurs Danny Meyer and Tom Colicchio were at the helm of the movement. In 2015, Meyer announced that he would do away with tipping at all 13 restaurants in his Union Square Hospitality Group. His decision was decades in the making. In a 1994 newsletter, he wrote:

[The American system of tipping is awkward for all parties involved: restaurant patrons are expected to have the expertise to motivate and properly remunerate service professionals; servers are expected to please up to 1,000 different employers (for most of us, one boss is enough!); and restaurateurs surrender their use of compensation as an appropriate tool to reward merit and promote excellence]

  via  Eater

via Eater

When he finally abolished tipping in 2015, Meyer cited closing the gap between tipped, front-of-house workers’ and non-tipped back-of-house workers’ earnings as one of his main motivators. Under his tip-free model, every individual employee benefits from revenue-sharing.

Colicchio was also a vocal supporter of restaurants moving toward the tip free-model when he eliminated tipping at his flagship restaurant Craft in 2015. He told CNBC’s “On Money” that he chose to go tip-free so that he could compensate his staff members more fairly.

[We know through Studies at Cornell University that the amount of money left in the tip has very little to do with service, it has more to do with your accent, your race, or your gender.]

  Tom Colicchio  via Bravo TV

Tom Colicchio via Bravo TV

Meyer and Colicchio removed the line on the check where customers would typically add in a tip. To compensate for lost tips, the chefs raised menu prices around 20% so that they could increase their staffs’ wages. Hundreds of restaurants across North America have followed suit.

However, some restaurants who have tried the model have abandoned it, citing lost business. Colicchio’s Craft is one of them. Colicchio reversed his tip-free policy in 2016. Although he still believed in the reasons that restaurants are going tip-free, he conceded that the model cannot be successful until all restaurants adopt it.

[At Craft, if I were going to pay my servers an hourly wage that is on [a] par with what they're currently making, it would be in the neighborhood of $34 an hour. So back waiters or bussers in the range of $22. They're making a good wage because of tips. Now, we do away with tips. The only way to fund that would be through raising prices. If the average tip is about 20 percent, we still have to raise prices 23 percent, because then you're going to push up wages for everyone else. If I were to do it tomorrow, it puts me at a competitive disadvantage to someone who is just shopping online looking at prices. If everyone does it, then I think we'll see some change.]

So, should your restaurant ban tipping? We’ve rounded up some of the most common arguments for and against going tip-free.

Arguments For Going Tip-Free

Higher BOH Wages

One of the most compelling arguments in favor of going tip-free is that it leads to higher wages for back-of-the-house workers like cooks and bussers. At restaurants where the average check size is steep, back-of-the-house workers typically make less than tipped servers even though their base wages tend to be higher. This data from Bon Appetit is pretty staggering.

Under the tip-free model, BOH workers are included in the restaurant’s revenue-sharing policy. That’s why Meyer reported raising menu prices just over 20% (20% is widely acknowledged as the standard restaurant tip). After going tip-free, Meyer raised the starting hourly pay for line cooks at the Modern from $11 to $14.

A Better BOH Staff

A positive side effect of higher BOH wages—in addition to more appropriately compensating staff members hard work—is a stronger BOH staff (which translates into higher quality food!). According to Seattle restaurateur Renee Erickson, who went tip-free at Sea Creatures, eliminating tipping is a good investment for restaurants because it results in less BOH turnover. Less turnover means less rehiring and retraining on your end as well as more experienced cooks.

More Wage Stability for Servers

Another reason many restaurants are going tip-free is to increase their servers’ wage stability. As you probably know, in many states, the minimum wage for tipped workers for tipped workers is lower than the minimum wage for non-tipped workers. In fact, only seven states require employers to pay tipped workers the full minimum wage. In the other 43 states, the minimum wage for tipped workers can dip as low as $2.13 an hour. Workers are expected to make up the difference with tips (employers are legally obligated to make up the difference if servers earn less than minimum wage after tips, but investigations by the Wage and Hour Division of the Department of Labor between 2010 and 2012 found an 84% non-compliance rate).

  via dol.gov

via dol.gov

Although tipped workers have the potential to make great money through tips, that is entirely dependent on check size and what percent of the total bill customers decide to tip. So, while tipped workers can make a lot in a day, they can also make very little. At restaurants with lower menu prices or where diners tend to tip less, FOH workers can actually make much less than BOH workers. In fact, a 2011 EPI study found that tipped workers are more than twice as likely as non-tipped workers to fall below the poverty line.

Moreover, research has shown that perceived service quality explains less than 2% of the variation in tip percentage. Clearly, your servers are being tipped based on factors that are out of their control. For example, young diners typically leave smaller tips. About ⅓ of millennials tip less than 15% (whereas only 16% of older demographics admit to doing so). In a recent survey, 10% of millennials said they don’t tip at all!

Replacing the tipping model with a revenue-sharing one leads to less income variation from day to day and moderates the effect of working a slow shift or serving particularly stingy diners.

Tipping is Discriminatory

Additionally, as Colicchio said, tip sizes are often unfairly based on factors like race, age, and physical appearance. On average, nonwhite servers make less than white servers for equal work. Dr. Michael Lynn, a professor of food and beverage management at Cornell University’s school of hotel administration and a leading authority on tipping research, says that this data qualifies tipping as discriminatory and therefore calls the legality of tipping into question. He explains:

[Specifically, the results suggest that the use of tips as a means of compensating workers may violate the Civil Rights Act of 1964, which prohibits employment discrimination on the basis of race, color, religion, sex, or national origin. The idea that employers might be held liable for the discrimination of their customers will come as a surprise to many, so it deserves elaboration. In Grigg’s v. Duke Power Company (1971), the Supreme Court rules that the Civil Rights Act of 1964 prohibits business policies that have a disparate impact on protected classes of applicants and employees even if those policies and practices appear at  face value to be neutral and are not intended to discriminate.]

Tipping Perpetuates Sexual Harassment

Living off of tips provides an incentive for employees to tolerate inappropriate behavior from customers. According to a Restaurant Opportunities Centers United report:

[Tipped workers experienced higher rates of harassment via media from customers than non-tipped workers. Tipped workers reported higher rates of inappropriate letters, ‘sexts’ or texts of a sexual nature, and photos from customers. Tipped workers also reported higher rates of harassing physical behaviors from customers, including pressure for dates, suggestive looks, deliberate touching, and inappropriate kissing. Tipped workers also experience higher rates of certain verbal harassing behaviors from customers such as sexual teasing and being told to flirt and expose themselves.]

  via rocunited.org

via rocunited.org

The same report revealed that tipped workers also experience more sexual harassment at the hands of their employers. For example, female tipped workers’ uniforms are typically more suggestive than female non-tipped workers. Moreover, a server from Houston explained that hiring criteria often places demands on women’s appearances. The server reported, “[They] would say, ‘I want this many servers, none of them fat, none of them ugly.”

Arguments Against Going Tip-Free

Many Servers Oppose the Policy

Regardless of your intentions, servers may not be happy about you banning tipping at your restaurant. Many servers, especially those who are used to collecting generous tips, are opposed to the tip free model. After Bar Agricole went tip-free, servers made an average of $20-35 an hour instead of $35-45 an hour. The pay cut led 70% of servers to leave the restaurant. Likewise, Meyer says he lost 30-40% of his FOH staff after eliminating tipping at his restaurants (one Union Square Cafe server claims that her annual pay dropped $10,000). So, while going tip free has been shown to reduce BOH turnover, it can increase FOH turnover.

Customers Oppose the Policy

Apparently, customers aren’t too happy about restaurants going tip-free either. A 2016 survey found that 81% of Americans were opposed to the idea of eliminating tipping. Why? There are a few plausible reasons. First, people believe that the service is worse at tip-free restaurants because there is no incentive for servers to perform well. Second, research shows that people are happier when they can leave a large tip. Third, people have the urge to penalize poor service. So, when customers lose the ability to adjust tip size, they feel alienated.

According to Dr. Lynn, tip-free models can lead to negative reviews. When Dr. Lynn looked at Google reviews and yelp ratings for 18 Joe’s Crab Shack restaurants where the company temporarily suspended tipping. Ratings on a five-point scale decreased by a third of a point on average during that time.

Some customers have gone beyond leaving negative reviews. In October, consumers in New York and the Bay Area filed a class action lawsuit against, Meyer, Colicchio, and other notable restaurateurs who have gone tip-free. They alleged that the owners were holding secret meetings and eliminating tipping for the sole purpose of raising prices as part of an anti-competition conspiracy.

Diners May Experience Sticker Shock

According to Dr. Lynn, customers experience “bundled” prices differently than they do “partitioned” prices. So, even though customers will eventually have to add gratuity at restaurants that accept tips, they see menu items as cheaper than at restaurants where hospitality is already included in the menu price. When NYC restaurant Fedora went tip-free, customers ordered less food or lower-priced wines. This led to a loss in revenue, so the restaurant reinstated tipping after four months. Colicchio reported a similar experience.

To be fair, customers do end up paying a bit more at tip-free establishments because restaurants often raise menu prices more than 20% so that they can share revenue with FOH and BOH employees. This means that customers could pay up to 5% more if they usually tip 20%, or more if they usually tip less than 20%.

It’s pretty clear that whether or not you should tip free depends on a number of factors. For example, when determining what’s best for you and your employees, think about the average check size at your restaurant and how your customers would react to higher menu prices.

So, where do you stand in the tipping debate?

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