Skip to main Content

$

What’s Going on with Tipping in Restaurants?

By CAN Capital

1 minute Read

tippingProbably the biggest news in the restaurant industry today isn’t any culinary trend, exotic ingredient or cocktail combination. It’s whether tipping is going to be phased out.

There are many reasons for this change. A big driver behind the no-tipping movement is to equalize wages between the wait staff and the back-of-the-house staff. In the past 30 years, the income for waiters at fine-dining restaurants has gone up over 200 percent while the wages for non-tipped workers have gone up only 22 to 25 percent, estimates Danny Meyer, a restaurant CEO who advocates a no-tip policy.

Meyer and others believe that by eliminating tipping, they will solve this income disparity and create a more unified, efficient work force.

But tipping is a big part of our American culture, and it’s a practice that is hard to do away with.

Motivations and consequences

The pay disparity between servers and cooks, along with a desire to provide a more stable source of income for all the workers, is what motivated Erick Harcey, the chef and owner of Minneapolis-based Upton 43 and Victory 44, to try to eliminate tipping.

The experiment, which involved raising menu prices by about 20 percent, seemed to go well. The staff didn’t rebel, and for the most part guests didn’t seem to mind the price increase (some actually wanted to leave an additional tip).

The problem, however, was that they were not able to remain competitive with other restaurants in the area. The prices that appeared on the menu scared people away. Ultimately Harcey had to go back to the traditional tipping model.

In the end, in order for the no-tipping model to succeed, more restaurants need to adopt it. Otherwise, guests visiting restaurants that have integrated the tip with their prices may experience sticker shock. These no-tip restaurants might price themselves out of business.

Effects on staff

An equalized pay structure allows many restaurant owners to attract and retain talented chefs and line cooks. On the other end, the wait staff may fear that they will earn less and be upset about having to pay taxes on all of their income. Though it’s true that technically they must declare all of their tips as taxable income, we all know some don’t.

Like any big change, a no-tip policy offers positives and negatives that restaurant owners must negotiate. While tipping is not going away, the no-tipping model is creating a lot of buzz and gaining momentum. If you own a restaurant, it’s something you want to keep an eye on.

Photo credit: Mikhail hoboton Popov/shutterstock.com

(32)

CAN Capital Newsletter

Stay up to date with the latest financial news.

Smart, Simple & Fast.

GET STARTED