Have you ever wondered why restaurant servers are paid less than minimum wage, then given tips to compensate, instead of getting paid a living wage up front? It’s the question of the moment in the restaurant industry, and over the past year, a few interesting changes have been taking place.
But before we talk about why some restaurants want to abolish tipping, first let’s talk about the types of tipping that are currently in practice.
Customers tip waitstaff based on the quality of their service, though it’s generally expected that you leave at least 15%, with 20% for great service. The money goes directly to the server.
All front-of-the-house staff who interact face-to-face with tipping customers are paid a low base wage (less than minimum wage), then management combines and divides all tips between the wait staff. Different employees (bus persons, servers, or bartenders, for instance) may earn a different percentage of the tips, and none of the tip money is kept by the restaurant or split between employees who aren’t interacting with the tipping customers (aka, the kitchen).
Service charge/admin fee
A service charge, usually 15-20 percent, is automatically added to the bill. The money can then be split between front-of-the-house and the kitchen, but none of the money is kept by the restaurant. Thomas Keller’s Per Se came under fire last year after it came to light that money brought in under its “service charge” wasn’t being distributed only to the staff.
Gratuity-included simply means that gratuity is included in the price of your meal. This usually means menu prices are raised anywhere from 10%-30% to make up the difference of what would be gained in tips, and staff are then paid at least minimum wage or higher.
In the U.S., standard tipping has been the norm for years, especially at more casual eateries. But as more and more restaurants, like those operating under Danny Meyer’s Union Square Hospitality Group, eliminate tipping, others are following suit.
Joe’s Crab Shack recently tested a no-tipping policy at 18 of its restaurants, and said the test went better than expected – but the management is waiting to see the long-term impact of the policy before forging ahead.
What exactly is the problem with tipping? These are just a few of the reasons some restaurateurs are opting out of tipping.
Cons of tipping
Kitchen workers aren’t paid well compared to the front-of-house staff, especially at high-end establishments. At these ritzy restaurant, servers rake in bigger tips, but the back-of-house staff are usually making not much more than minimum wage. The Bold Italic estimated that the average income for a cook at a popular restaurant in San Francisco was $23,000 a year before taxes, versus $81,000 for a server. It’s hard to argue that the job of a server is more difficult or taxing than that of the people actually cooking the food, but because of the tipping system, their salaries are dramatically different.
Discrimination runs rampant when customers tip
– White servers are tipped more than servers of color
– Female servers and front-of-house staff make more in tips than their male counterparts, but experience sexual harassment from customers and employers at a higher rate than almost any other industry
– Attractive waitresses get tipped more than less-attractive waitresses
– Thin women are tipped more than heavier women
Servers aren’t paid a living wage if business is slow. The federal tipped-minimum wage is $2.13 an hour, and if they don’t make at least $7.25 and hour, the restaurant must make up the difference. But in major metropolitan areas, $7.25 an hour isn’t going to cut it when it comes to servers paying their bills.
When restaurants pool tips, management can withhold money from the staff – there’s not enough transparency to ensure that everyone is getting their fair share.
Servers can under-report income on tax documents – the IRS estimates that nearly 40% of tips are not reported. This can further skew the income inequality between the wait staff and the kitchen, as statistics may show that the discrepancy between earned income isn’t as great as it actually is.
Customers are unreliable
Customers tip after the meal, so servers have no way of knowing if they’ll be appropriately compensated for their work. This leaves a lot of their income up to the random goodwill (or lack thereof) of customers.
And yet, switching to a no-tipping model isn’t always successful.
Thad Vogler of San Francisco’s Bar Agricole and Trou Normand instituted a no-tipping policy in 2015, raising menu prices by 20% to compensate. While the restaurants were able to raise the salaries of their kitchen employees, formerly tipped staff saw a decrease in wages, and 70% of his employees left for greener pastures during the 10 months of no-tipping. Vogler then switched back to a standard tipping policy.
For reasons like this, as well as a few others, many businesses are unenthusiastic about switching to a no-tipping model.
Pros of tipping
Customers like it
Customers feel in control of their meal experience when they give tips.
Menu prices are lower
Customers have an easier time justifying the added cost of eating out when tip is separate from the prices on menus. But when the service is included in the menu price, the higher price can scare customers off.
It’s the status quo
People in the U.S. are used to a tipping system, and changing to a no-tipping policy requires a cultural shift, as well as a monetary one.
Income stays steady
When changing to a no-tipping policy, back-of-house staff may get paid more, but front-of-house income can drop. Even if their hourly wage is increased, the lack of tips can result in servers taking a pay cut, which can then lead to a higher employee turnover rate, which places a strain on the business.
There are many pros and cons to the tipping issue, and judging by the number of restaurants adjusting their policies, it seems like we are on the cusp of change. Whether or not the change will be successful? Only time will tell.
"To tip or not to tip? The question plaguing the restaurant industry" originally published on The Menuism Dining Blog.