An earlier version of this post ran in 2020. We’ve published this update because the landscape of employment in the restaurant industry has changed drastically since then, and we believe employers should have the most up-to-date information when making strategic business decisions.
Ghost kitchens, contactless ordering, high-capacity drive thru’s: the innovations coming from the restaurant industry have been non-stop. Along with these operational changes, is it time for restaurants to shake up how they pay employees? Or would switching over to a no-tipping restaurant model create more problems than it solves? If you are wondering if ditching the age-old practice of tipping is the right move for your restaurant, consider the following:
PRO – Addresses the Rise in Non-traditional Dining
Technology has enabled even traditional dine-in restaurants to incorporate carry-out and delivery into their business model seamlessly. But, when the customer places an order online for contactless carry-out, who should that tip go to? As restaurants change their service structure, establishing an equitable method of handling tips can be tricky. By setting a livable hourly rate, every employee will have a decent paycheck regardless of how a customer chooses to order.
CON – Labor Costs Must be Absorbed Somehow
No-tipping restaurants will need to offset the rise in payroll expenses somehow. The simplest way to handle the extra cost without sacrificing quality is to increase menu prices or add a set gratuity surcharge. While guests probably won’t pay any more than usual in the end since they will no longer pay extra for tips, there will undoubtedly be some sticker shock when they look at the menu. In markets with intense competition among restaurants, like New York City, this could be problematic.
PRO – Creates Stable Pay
The most obvious benefit of being a “no-tipping” restaurant is the ability to provide staff with steadier paychecks. There are so many factors beyond a tipped worker’s control, like supply shortages or staff turnover. Even when staff takes these challenges in stride, puts on a smile, and does their best, it can be disheartening when the customer’s tips don’t reflect their efforts. Eliminating tipping could reduce the anxiety of working in an unpredictable industry and provide a new sense of stability to a restaurant career.
CON – Limits Earning Potential
Tips can provide large earning potential, especially in high volume or high price point restaurants. Many servers enjoy knowing that their hustle and service can have a direct impact on their paycheck, and may resent losing that control. Eliminating tipping might also make front-of-house staff less willing to take on the high-stress, busy shifts.
PRO – Avoids Potential EEOC Pitfalls
Department of Labor rulings on tipped workers has been heavily influenced by politics (we created a quick summary of the most recent FLSA rulings). This means that business owners with tipped employees must constantly adjust their policies and tracking of tipped work. Eliminating tipping would reduce man-hours and headaches involved in managing that aspect of payroll.
CON – Difficult to Create Buy-in
The tipping culture in American restaurants runs deep. Customers are accustomed to being able to reward outstanding service and servers enjoy seeing their hard work acknowledged. Many front-of-house workers enjoy seeing immediate rewards for a job well done. If a restaurant does not have the support of its customer base or staff, a no-tipping structure could potentially backfire.
PRO – Builds Staff Unity
It’s no secret that there is often a divide between the front and back-of-house staff. The disparity of pay created by tips only exacerbates that issue, since tips can often boost servers’ pay to almost double that of the kitchen on busy nights. One can argue that the back-of-house performance has just as much of an impact on the customer experience. Creating a pay structure that spreads compensation evenly may create a stronger team atmosphere. Theoretically, this could boost service and reduce turnover.
Clearly, there is no right answer, and every restaurant has unique elements to consider. But having the right management in place is key to implementing any change of this scale. The restaurant recruiters at Horizon Hospitality can help you find leaders who can execute plans and keep staff motivated. Contact them today to learn how.