Money

Has The No-Tipping Experiment Stalled Out?

Several high-end restaurants have gone back to tipping, as new technology promises higher tips

Money
REUTERS
May 14, 2016 at 12:57 PM ET

In recent months, several high-profile restaurants started to abandon the age-old system of tipping, opting instead to include a mandatory service fee or fold the cost into the price of the food itself. A tipless system may sound ideal in theory, as it eliminates the tension between “what you think you should tip” and “what a waiter expects you to tip.” But as new payment technology brings with it higher tips, there are signs that the tipless ideal may not be so great in practice. It’s a debate that may seem trivial to some, but it matters deeply for the 4.3 million Americans who rely on tips as part of their income.

It was Danny Meyer, head of the influential Union Square Hospitality Group, who gave the no-tipping movement a high-profile boost. Last fall, he announced to great fanfare that he’d be slowly moving his small empire of high-end Manhattan restaurants away from tips and toward a revenue-sharing model. Several other high-profile restaurants followed suit, and it started a national conversation about the tipping economy.

The primary problem with the restaurant tipping system as it exists now is that it creates a big disparity between the money waiters and front-of-house staff pull in, and the salaries that prep cooks and kitchen staff earn. Although strict laws governing the sharing of tips are meant to protect employees from managers skimming off the top, those same rules make it illegal for servers to share tips with back-of-house staff.

Prep cooks get a median base pay of $9.50 per hour, which amounts to about $20,600 per year. Servers, because they’re tipped, get a minimum base pay of just $5.00 per hour. On top of that there’s a median of $8.20 an hour in tips (though that can obviously vary widely by restaurant, shift, etc.). That means an average yearly salary of around $27,450, but at higher end restaurants servers can make anywhere from $40,000 a year and sometimes even up to $100,000 a year.

While it benefits some people, there are certainly problems with the current gratuity system. For one, tipping relies on the generosity of people who are basically strangers: it is meant to reward good service, but it’s not always deployed in that way—a serious issue for people who rely on such funds to make ends meet. There is also evidence that women and minorities routinely receive lower tips, and the amount one rakes in from tips varies considerably shift to shift.

In theory, by ending tipping, the playing field between waiters becomes more even, money is distributed fairly between front- and back-of-house staff, and managers, rather than customers, can determine a server’s income. It also allows restaurants to increase prices enough to cover rising labor costs.

It reads well on paper, and Danny Meyer’s plan—which uses a revenue-sharing model in place of tipping—seemed to promise that he’d be able to pay servers the same or more as they’d been making, while also raising wages for the kitchen staff. The Modern, his first restaurant to institute the change, has so far been a success story. But it’s a high-end restaurant to begin with, so customers might be less likely to balk at increased prices. It also benefitted from a huge amount of publicity after Meyer’s no-tipping announcement.

But as a large-scale experiment, not tipping may not be working: several restaurants who’d tried a no-tipping policy announced this week that they are returning to their old business model. When prices are increased to account for the 15-20 percent lost in potential tip revenue, customers may decide they don’t want to pay the premium—even though many gladly did before. Such a scenario results in fewer customers and lower income for everyone.

For example, Fedora, another high-end restaurant in New York that got onboard with no-tipping, abandoned the idea after finding that it didn’t work for them. Even large chain restaurant Joe’s Crab Shack slashed its number of no-tip locations from 18 to four—out of a total of 130. The restaurant says the move was made in response to complaints by customers and staff

It’s also worth noting that new technology being implemented in some restaurants has resulted in better tips for workers. Previously, paying a check meant customers leaving cash or calculating a tip on a paper receipt—away from the prying eyes of the waitereee. Nowadays, restaurants are using handheld microprocessor chip readers for credit cards, which means customers are interacting with servers as they’re tipping them. One report found that 41 percent of people said if the server was nearby when checking out it would “probably” or “definitely” make them more likely to tip.

Many restaurants, even those that don’t have table service, have also started using iPads and iPhones to ring people up. Payment software, like the now-ubiquitous Square, offers pre-determined percentages to tip, as well as a “no tip” option, which forces people to confront any potential stingy feelings they may be experiencing. As a result, many restaurants have found that these new advances have led people to be considerably more generous than they used to be.

Of course, even if tips soar and become more reliably consistent, that doesn’t entirely address the disparities caused by a tipping system. Back-of-house workers, who also make a significant contribution to a restaurant’s success, are still left out of the equation. It’s a deeply flawed system that’s probably not sustainable in the long term (there are already reports of cook shortages). However, as recent experiments are showing, there may not be a simple, across-the-board solution.