Is It Time to End Tipping? No: Servers will lose money, and service will suffer

Original Article:

  • Author: Michael Saltsman

  • Publication Date: February 2016

  • Newspaper: Wall Street Journal

  • Topics: Minimum Wage

Restaurant owners in some major cities are facing a dilemma: Recent minimum-wage increases are forcing them to give their best-paid employees (servers) a substantial raise, while labor regulations prevent them from sharing any portion of the gratuity left at the end of a perfect meal with the people who actually cooked it.

Going tipless is intended as an elegant solution to these problems. By eliminating tips in favor of a 20% (or more) price increase, the restaurateur can redistribute money that was previously restricted to serving staff.

While that might be good news for the chefs, it’s as welcome as an undercooked chicken breast for waiters and waitresses—and in many cases, the customers they serve.

Tipped employees stand to lose more than they would gain under this new system. San Francisco restaurants Trou Normand and Bar Agricole estimated they lost 70% of their wait staff during a tip-free experiment in 2015, despite the higher salaries. Owner Thad Vogler told CNN Money that his servers in San Francisco were making as much as $45 an hour with tips, and $20 to $35 an hour without. To stop the bleeding, he brought back tipping after 10 months.

Losing staff is one concern for restaurateurs; losing customers is another. Danny Meyer’s New York eateries are raising prices by as much as 25% to support higher salaries in the absence of tips. Mr. Vogler was reported as saying a whopping 40% price increase would have been necessary at his restaurants to keep servers’ take-home pay the same, while funding raises for the kitchen staff.

To put these higher prices in perspective, consider another San Francisco restaurant, the casual French bistro Zazie. Its menu says you can skip the tip, but that means you’ll pay $19 for three buttermilk pancakes at breakfast, and $34 for your cassoulet at dinner. Across the Bay at Lanesplitter Pizza in Emeryville, Calif., a tip-free model means they now charge $31 for a large pizza with pepperoni and onion. If you grew up (as I did) paying $5 for a basic pepperoni-and-cheese pizza at Little Caesar’s, these new tip-included price levels are enough to do what a New Year’s resolution couldn’t: change your eating habits. That’s a death knell for both chain and independent restaurants.

Customers also may find that they’re paying more for less—as in, less service. The tipped status quo—where servers are guaranteed the minimum wage, but tips can take them far above it—creates an incentive to provide exceptional service to everyone. Without that incentive, service suffers.

Parisian Pascal-Emmanuel Gobry, writing in The Week, described the poor service culture in France, where tipping isn’t a custom: “Here, waiters are almost universally dour, unkind, frequently forget or mess up your orders, and generally scowly.” It is perhaps too early to tell whether this lack of customer service could be exported to the U.S., but the early reviews are worrisome. “While the food was great, our service was next to nonexistent,” said one customer of a Seattle restaurant that went tip-free. “We all wondered if this was a result of the new tips-included policy.”

But what about the cooks, you ask? The fact that servers’ pay is rising while the kitchen staff’s stagnates is a consequence of laws that prevent restaurant owners from counting tips as income, and from sharing those tips with nonservers. The way to “fix” this isn’t to do away with tipping, but for states to follow the IRS in treating tips as income, while relaxing laws on how gratuities can be distributed.

Which brings us to the last, and perhaps best, reason to preserve the status quo: Most servers and customers like it.

A recent survey of 3,000 U.S. consumers by Horizon Media found that a whopping 81% prefer the status quo to a tip-free alternative. My organization used Google’s Consumer Survey tool to poll roughly 2,500 self-reported restaurant employees who earn tips, and nearly 60% rejected even a $15 minimum wage if it meant they would no longer receive tips.

These poll results bring to mind an old saying: If it ain’t broke, don’t fix it.