Tipping the Scales

Operators put new tipping and no-tipping models to the test.

Operators have long struggled with rectifying the imbalance of traditional gratuity policies. 

Is it fair for cooks to continue to earn a fraction of what servers do? Are tips still the best way to incentivize good service? Can new systems potentially improve staff benefits to maintain loyalty? 

This long-simmering debate came to a roiling boil last year when high-profile operators began eliminating tipping in tandem. 

In September, Chef-owner Tom Colicchio 86’d tipping during lunch service at his famed restaurant, Craft, and increased menu prices. Restaurant mogul Danny Meyer of the Union Square Hospitality Group followed suit in October, announcing plans to eliminate tipping at his 13 restaurants. 

The timing wasn’t completely unexpected. Implementation of the Affordable Care Act and a wave of recent minimum-wage hikes have compelled many operators to question the long-term viability of the current system. 

As a result, an increasing number of restaurateurs are looking to alternative service-payment models. Some of these new systems offset the loss of revenue from tips with higher menu prices; others levy administrative fees and inventive profit-sharing programs. 

“How many restaurants will succeed with these models is uncertain,” says Steve Zagor, dean of business management programs at the Institute of Culinary Education. “But at this point, it appears to be a movement to be reckoned with.” 

Tips for Restaurants Without Tipping

Don’t jump to the new system. Inform your staff ahead of time of a set implementation date for the new system to allow room for new employees should some of your staff leave.  

Skip the canned language. When guests pose questions, let servers offer personalized stories about how the changes have improved their working conditions. 

Create incentives. Offset the small dip in servers’ salaries from the loss of tips by introducing a new benefit, such as a new vacation policy, insurance coverage or profit-sharing plan. 

Talk it out. Take a few days to sit down individually with each of your servers. Your cooks will embrace the change, but your waitstaff will need coaxing. 

Humanize your staff. Create short profiles of your servers and cooks on social media, so guests can put a face to the people the new system is directly benefiting. 

Be transparent. Plaster an explanation of your policy everywhere, on chalkboards, on the menu, in email confirmations. Having guests on board with the system is the key to a smooth transition. 

Raising the Bar

Tipping is an illusion of control for guests and servers, says Anthony Rudolf, former director of operations at Per Se who founded Journee, a New York-based educational organization for restaurant professionals. “The whole system is a charade. The only person with control is the owner to hold their team accountable to the level of service they desire.”

Leaving 18 percent is a sign of approval for some diners who typically leave just 15 percent. Meanwhile, those who usually tip 20 percent may leave an 18 percent gratuity to indicate mild disappointment. Trying to figure out what guests are trying to communicate through their tips is pure guesswork, says Rudolf. 

As a result, Per Se devised a service-included model, which raised the overall price of its set menu offerings. According to Rudolf, this model gives operators greater control over their purse strings. The system means Per Se can provide cooks with higher hourly wages and increase salaries for their best servers and managers, thus reducing staff turnover. 

“I know most restaurateurs are fearful of change,” says Rudolf, “but implementing the right change can improve the entire ecosystem of your business.” 

At the Basque-inspired Huertas in New York, managing partner Nate Adler took a similar approach in late 2015, dropping tips altogether while raising prices on individual items across his menu. The key, he says, is to carefully calibrate menu prices without turning off diners. Popular items, like his grilled octopus, might be bumped up $5, while others may go up only $1 or $2. 

The goal is to bring in an additional 22.5 percent in revenue. A portion of the revenue is divided between the front and back of the house staff like a tip jar, sidestepping any laws prohibiting servers’ tips from being distributed to noncustomer-facing employees. 

“The great thing about this system is that we can vet people who come looking for a job,” says Adler. “We can say, ‘Here’s what we do. Do you want to be a part of that?’ We can build a team who’s invested in the restaurant itself.” 

As a result, Huertas has had less difficulty filling vacant positions and can ensure its servers are covered with better wages during slower patches of the year.

WHY DO WE TIP?

America’s tip-based system dates back to 15th century Great Britain, according to author Steve Dublanica’s book “Keep the Change.” During this time, visitors to private homes began showing their gratitude for fine service in the form of gratuities.

Soon, the upper classes were expected to give everyone from valets to maids to footmen a service tip or else find themselves with dirty sheets or a particularly bumpy carriage ride. Later, as low-income earners formed a middle class in large cities, the practice was extended to eating establishments and hotels. 

The notion of tipping didn’t find its way across the Atlantic, however, until after the Civil War when wealthy Americans started taking grand tours abroad in Europe. The American travel industry—including boats, restaurants and railroads—adopted gratuities as a way to transfer the responsibility of paying its employees to guests. 

In the early 20th century, many unionized waiters in big cities fought against tips to push for minimum wages. But in the face of opposition from their bosses, they acquiesced. When Prohibition arrived and the threat of tampering with cocktails arose, the importance of tips only increased, helping solidify a gratuity system that carries on, in a similar form, to this very day. 

Finding a Model That Works

For some restaurants, increasing prices to eliminate tips can rub customers the wrong way. Joe’s Crab Shack ended its no tipping pilot at 14 locations after determining that the change caused a drop in sales and complaints from staff. While some operators see the lack of adoption at a national chain as a setback, others believe success lies in implementing the right model. Many concepts in Renee Erickson’s Seattle restaurant group Sea Creatures, for example, are located in mixed-use spaces that include dining rooms using the old model. Raising prices means servers would have to continually justify the uptick in relation to establishments only a few steps away. 

Knowing that many of their guests have dined abroad, Operations Manager Jeremy Price instituted a set 20 percent service charge on every check like the model used in Asia and Europe. Transparency is key, with each menu indicating how the charge is divvied up: 55 percent to servers, 20 percent to the back of the house, and the remaining 25 percent going to the company to pay for benefits. 

Although the system was implemented to create more pay equality, the changes have helped tap quality chefs to staff two new restaurants amid Seattle’s growing cook shortage. 

“I think employees gravitate to restaurants where they feel like they are getting a fair shake,” says Price. 

How to Share and Share Alike

Eliminating tips is only one way to boost staff earnings and loyalty. After ditching gratuities in favor of set hourly wages, co-owners Joshua Lewin and Katrina Jazayeri at Juliet in Somerville, Massachusetts, instituted a quarterly profit-sharing program. The program was designed to help their employees feel like active stakeholders in the company, providing staff with full profit-and-loss information each month, as well as training on how to read the statements. 

Lewin and Jazayeri set basic benchmarks for the health of the company, taking into account wages, rent, savings for improvements and an emergency fund. Any profits that are accrued above that number are then split 50-50 with the staff on a monthly basis. The goal is for everyone in the company to earn $2 an hour above their given hourly salary, but it also seeks to incentivize staffers to avoid waste and to upsell the right items. 

In the past, selling the most expensive item used to be in a server’s best interest. But in a system like Juliet’s, selling the most profitable items buoys profits, which benefits everyone’s earnings. 

“In the end, I just don’t want others to struggle the way I did,” says Lewin. “I’m lucky to have built a career in this industry. I hope a system like ours takes some of that need for luck out of the equation.”

Wage Fairness

If ending tipping is so easy, why isn’t everyone doing it? Countless operators are holding fast to the old model to avoid difficult management decisions and costs, says Zagor. 

Under the traditional system, servers’ salaries are dictated by paying guests. A shift to a no-tipping system not only creates an extra tax burden, but it also forces operators to set individual wages—perhaps paying one server more than another—which can cause friction. Operators are torn over the inevitable backlash from servers who will feel that they aren’t making as much and customers skeptical of paying higher prices. 

“As it is right now, diners control whether or not a server can pay their bills, rent and even eat,” says Robert Phalen, owner of One Eared Stag in Atlanta. “By rolling everything into the final bill, we, as industry leaders, can ensure that our staff is taken care of.”  

The traditional model has other benefits, such as immediate feedback and incentives to provide better service, says Eric Silverstein, chef-owner of the The Peached Tortilla in Austin, Texas. 

“Servers and bartenders are incentivized to give out better service,” Silverstein says. “Additionally, people tip differently dependent on the situation, for instance, takeout versus dine in. A (set) fee model eliminates situational tipping.”

Chef-owner Fabio Viviani, who operates a number of restaurants in Illinois and California, believes that the traditional model remains the best way to differentiate stellar workers from subpar ones, as well as dedicated career employees. He questions if servers and staff members will show the same enthusiasm and drive under a new system. 

“I believe competition brings out talent in people,” Viviani says. “Equal payment tends to bring out average work.”   


Alternative Resources

Take a tip from these unique service payment models

Ippuku in Berkeley, California, has imported a restaurant payment model often used in Japan that adds the cost of sales tax to its menu prices and a $3 per person “table charge” to all bills. 

Guests who visit Magpie Cafe in Sacramento, California, are presented with a check bearing two different tip lines: one labeled “server tip” and another labeled “kitchen tip,” which allows for gratuities to be divided as diners see fit. 

Seattle-based seafood chain Ivar’s has raised menu prices but retains an additional tip line. Therefore, everyone makes at least $15 an hour, but servers can still earn gratuities for excellent service. 

Willow Restaurant in Portland, Oregon, has eliminated tips and implemented a “single house system” where all employees act as servers and chefs, preparing and delivering dishes to guests. 

Bar Marco in Pittsburgh has nixed gratuities and established set salaries for all employees by reducing portion size, using more whole-animal butchery and cutting down on excess labor.