With restaurant tipping in the spotlight thanks to proposed changes to tip pooling regulations, restaurants are weighing the pros and cons of the long-time custom. The proposed rule would turn back the 2011 law that prevents employers from distributing tips to workers other than tipped employee, so back-of-house as well as front-of-house workers could share tips. The debate over tipping begs the question whether it’s time for a change—and if a tip or a no-tipping restaurant model is best for your business .
The Pros of No-Tipping Restaurants
- Your servers make a set wage. For a restaurant that has always paid the tipped employee wage (a minimum of $2.13 for workers who receive at least $30 per month in tips) this idea may be intimidating. The tipped employee wage is significantly less than the $7.25 per hour minimum wage, and you’d have to change the way you pay for labor. Paying a set wage could have benefits for your business, however. Your servers would have a more predictable income, and it could help you retain employees longer. This, in turn, could allow you to reduce training costs and develop a skilled staff that provides excellent service and builds customer loyalty.
- It closes the front- and back-of house wage gap. The U.S. Labor Department and the National Restaurant Association argue that tips create a gap between front-of-house and back-of-house workers. This may be especially apparent in fine dining establishments or difficult to justify if your business includes catering services in which customers interact with employees in a variety of job descriptions. In addition to a more equitable arrangement and good will, closing the wage gap may also mean better working relationships that lead to better customer experiences.
- Quality of service isn’t always rewarded with a bigger tip. Depending on your restaurant and its customers, your servers may not be earning what they’re worth in a tipping model. Demographicpartitions.org compiled results of surveys that show tipping is influenced by the diner’s understanding of tipping customs, their upbringing, annual income, gender, or even who is at the table with them. In addition, millennials often tip a little less than average, with CreditCards.com finding an average tip from a millennial to be about 16%, compared to the 20% average among baby boomers. No-tipping restaurants guarantee set pay for a job well done.
The Cons of No-Tipping Restaurants
- Consumers are mostly opposed. A Hart Research Associates poll in January revealed 82 percent of American consumers are against businesses controlling what happens to the tips they leave. Even if consumers were more open to the idea, replacing an age-old custom with a new model will take time. It will also take time for patrons to get used to new menu pricing. A $40 steak dinner with a 20% tip is $48. But seeing prices immediately increase from $40 to $48 could cause some sticker shock. Businesses that decide to be trailblazers can—and are—facing some difficulties.
- Servers could potentially make less money. The best servers in the best markets can earn an impressive wage. In no-tipping restaurants, however, this would not be possible. Is it enough to make good employees leave? When Union Square Hospitality Group did away with tipping, it lost between 30 and 40 percent of front-of-house staff with more than five years of experience.
- Servers could lose control and empowerment. Some servers like knowing they can control their destinies—if they hustle and provide top-caliber service they can earn more. In no-tipping restaurants, though, it doesn’t matter. There really wouldn’t be an incentive to be a star. Service could suffer, and restaurants may be faced with trying to incentivize servers by other means.
What’s the Right Model for Your Business?
The industry is watching to see whether no-tipping restaurants will be a part of the ever-evolving restaurant industry or of the tipping tradition will win out. It is obviously not a decision to be made impulsively, but it’s also not something to simply dismiss as regulations, consumer preferences, and the workforce changes. Weigh customer and your employee concerns heavily in your decision to maintain operations or to make a change.
