A number of restaurants in New York City have started shifting the model for paying their wait staff by eliminating tipping of its servers, while significantly raising the hourly wage and menu prices by as much as 20% to 30%. Most recently Meadowsweet in Brooklyn has joined this trend. Union Square Hospitality, which runs 13 high end restaurants in New York, has also joined, as well as Joe’s Crab Shack which is testing going tip-free in 18 of its restaurants.
In New York, an impetus for this trend may be in part the increase in the minimum wage for restaurant servers. Restaurants also struggle to find a balance of what they pay their valuable front of the house employees (the servers) and their valuable back of the house employees (the chefs and line cooks). The question now is whether this change to a salaried approach for servers is good or not for the restaurants, the servers, and the customers.
I must admit, I have been in restaurants where they automatically add 20% tip to a check for large parties. My reaction, as well as my experience, is that such policies make it okay for servers to not work so hard. While I rarely would tip less than 15%, unless the person was out and out rude and disrespectful, I do value the ability to provide a tip that can range from 15% if I am not happy with the service to 25% if I loved the service.
I think there are some other unintended consequences here for this move. Imagine an evening that ends up way busier than expected or perhaps a server or two call in sick. With a tipping policy, this is an opportunity for a server to make some extra cash if they bust their tail. If they are paid a salary only, I am not so sure they will volunteer as freely to do their part to make up for the slack.
Also, at some of these restaurants that are high-end establishments, the check can be $60 to $75 dollars per person, or even more if there is wine or mixed drinks purchased. A single table of 4, could yield a tip of $60. Assuming they will stay for two hours, that is $30 per hour based on a single table. Obviously, most servers would have minimally 4-5 tables that they would be covering. So a “salary” of $27 per hour that Meadowsweet is proposing, could actually be a major pay cut for some servers, especially the best ones.
In Europe, the included service charge/no tipping policy is largely universal. While I don’t think I have encountered a lot of truly bad service in Europe, I can’t really think of any experience at a restaurant that I thought to be truly great.
Don’t get me wrong, I believe that servers should have a higher base wage (and the new NY minimum of $7.50 for restaurant servers is not steep) and I believe they should have access to health insurance if they work close to full time hours. As a customer, I would not at all mind a surcharge to cover insurance that would be provided to employees.
Increasingly, we are seeing retailers choose to pay employees more and work hard to have a better employment experience that translates to a better customer experience as well. Largely, these strategies are seeing success. However, in the case of restaurants, I am not sure they have yet figured out the right formula.
Bottom line, when making a change like this, companies need to make sure incentives are aligned between the company, its employees and its customers, otherwise these moves will likely backfire.
As someone with a brother in restaurant management, I am keenly aware of the managerial challenges that exist in restaurants. A move to salaried wait staff will only add to this managerial burden.
I ask myself a few basic questions: 1) with this change will servers potentially make less money? And 2) is the servers’ pay now independent of the service they provide to customer? I think most will agree the answer is yes on both counts.
I guess you can call me a skeptic on this one.
I share your skepticism. It runs counter to my basic entrepreneurial orientation to all commerce.
But, there is a missing point here. Having a “no tipping” policy robs the customer of the opportunity to participate in the rewards/affirmation side of a relationship. It is cut from the exact same cloth as “gratuity automatically added.” Gratuity is defined as a “gift of money.” Where is the gifting if it is automatic? What is fair about saying to the customer “we do not want or need your gift.” Feels a bit like saying to a friend, “Sorry, I do not accept birthday presents on my birthday because I am fairly compensated by my employer!”
I buy groceries at a well-known grocery chain that has a no-tipping policy for baggers who transport groceries from the check-out counter to a customer’s vehicle. I typically load my own groceries. But, when I injured my shoulder I needed help with grocery loading knowing my wife could remove them from the car once I arrived home. I tried to tip the bagger for his excellent help with my groceries but he refused my generosity telling me he would get in trouble if he accepted a tip. It left a very bad taste in my mouth about the entire grocery-buying experience–something the grocery store would clearly not prefer.
Tipping policies have more components than just the economic welfare of the server or the financial viability of the institution. There is the emotional welfare of the customer to consider as well. Do we want to nurture a strong relationship with customers or simply compensate the performance of a task by a server?
Hi Michael – ‘tipping’ in any walk of life is a very big topic – so thank you for starting what could be a lengthy debate. In my travels around the world last year, it became clear how significant tips can be – depending on where you are and who it is. In many cultures, tipping is still ‘expected’ – irrespective of whether the service/experience was good or not. I am loathed to ‘reward’ anyone unless they deserve it – whether it is the culture or not!
Personally, as a consumer, it is my preference to add my tip to the bill – I rarely carry cash and so this is easier. As long as the restaurant or business is committed to distributing tips EQUALLY to all staff, this I believe to be the most effective way to ensure that ALL staff play their part in delivering a great end to end experience. Where front of house staff can ‘pocket the cash’ whilst back of house staff have no opportunity to do so, it creates a ‘them and us culture’.
I personally believe that staff should be paid wage that is in line with the quality of the work they produce. Anything the customer would like to reward them on top is a bonus – it should not (in my opinion) be expected as a replacement for salary.
Just some of my thoughts!
It’s a tightrope. Generally, family and fine dining restaurants operate on tight profit margins; so, they are always looking for ways to be more efficient with the credit side of the balance sheet. That said, they are the one area of retailing where service, along with food and atmosphere, are core elements of value. Agree that going to straight salary for wait staff will have challenges, and there isn’t really a successful model for making this kind of change..
Thanks for the really great comments.
I think both Chip’s point about the emotional component and Ian’s comment about sharing tips with the back of the house are really important.
As we probably all know, that emotional component is critical to creating a truly loyal relationship. By definition, a restaurant experience is sensory, from visual presentation, to smell, and taste, Combined with the service experience, the restaurant experience in all segments is all about how it makes you FEEL. Thats what drives customers’ willingness to return. Restaurants thrive when customers come in with frequency and tell others. I think the salary move has the potential to really reduce the enthusiasm and commitment to service excellence.
The idea of sharing tips with the back of the house is a very interesting one. I’m not sure if it should be equal as Ian mentions, but today there is often a share of tips that is shared with with the bussers. If those tips were also shared with the back of the house it probably would create greater alignment and shared goals for servers and kitchen staff.
Appreciate the additional thoughts!
In recent months I’ve been using Uber and like the fact that there is no tipping. Frankly, most taxi rides aren’t memorable for good service, yet I feel obligated to tip because it’s a US custom.
With most (non fast food) restaurants it’s different. Service really matters and I actually enjoy saying “thanks” via a gratuity. How it’s managed behind the scenes is another matter, but good restaurants seem to figure out how to keep everyone motivated.
Still, when I travel outside the US, tipping is much less common. I’m really not sure how this impacts service quality or customer loyalty, but the simple fact is that it’s not part of the culture. So restaurants that want loyal customers have to figure out how to do that in other ways than via tipping.
I’m skeptical that no-tipping will catch on with nice restaurants in the US because it has become expected — by customers and wait staff alike. But I will be watching with interest to see how it plays out in NYC and elsewhere.
The assumption underpinning this discussion is that tipping (and tip amounts) are based strictly on quality of service. But studies have revealed that the tipper’s biases – including racial – influence what wait staff are paid.
“Black Restaurant Servers Get Smaller Tips,” was a headline in The Pacific Standard, September 4, 2014. The article states, “New research suggests implicit racism influences how much we choose to tip our waiter or waitress . . . Considering the fact that tips make up more than half of waiters’ income (at least according to a 2012 survey), this is more than a symbolic slight. It suggests black servers, on average, take home significantly less money than their white colleagues.” (For a link to the article, please click here.)
If the studies are true, efforts to abandon this compensation system demand our consideration. It’s unconscionable to maintain any practices that inherently support pay disparities based on race, religion, ethnicity, gender, sexual orientation, age, weight – it’s a long list.
Still, in listening to interviews with restaurant owners, the no-tipping rationale has a different appeal: control. One owner was adamant in her support of no-tipping because she disliked giving her customers any say over what her employees are paid. I think that was an ego thing – but it’s still a reason.
Andrew, interestingly, in my past lives we did studies that showed when doing phone surveys, white respondents were more responsive to white interviewers, African American to African American interviewers, and Hispanics to Hispanic interviewers. So while I agree with your premise that biases should not be acceptable, there are lots of biases. There are age and other biases as well.
Lets suppose the restaurant goes to a salary and the owner pays some racial groups or gender more than others for the same work. Its probably even worse than what you describe.
At the end of the day, to me its about alignment of incentives. Tipping creates alignment of incentives, even if it is imperfect. In my calculus, removing tipping will on balance be a net negative for the restaurant owner, the servers and the customers.