How U.S. restaurants are experimenting with no-tipping policies to counter rising minimum wages
Patricia Cohen, The New York Times | August 25, 2015 | Last Updated: Aug 25 2:51 PM ET
SEATTLE • Restaurant owners, customers and staff have long railed against the tyranny of tipping, but like a love affair gone bad, it has proved difficult to quit. Now, prompted by a spurt of new minimum wage proposals in major cities, an expanding number of restaurateurs are experimenting with no-tipping policies as a way to manage rising labour costs.
Here in Seattle, where the first stage of a US$15-an-hour minimum wage law took effect in April, Ivar’s seafood restaurants switched to an all-inclusive menu. By raising prices 21 per cent and ending tipping, Bob C. Donegan, president and co-owner, calculated he could increase everyone’s wages.
“We saw there was a fundamental inequity in our restaurants where the people who worked in the kitchen were paid about half as much as the people who worked with customers in front of the house,” Donegan said.
Nearby, the Walrus and the Carpenter instituted a compulsory 20 per cent service charge. At Manos Nouveau and Sous Beurre, both in San Francisco, the menu prices include tips and taxes. Dirt Candy, an upscale eatery in New York, tacks on a 20 per cent administrative fee.
Amanda Cohen, the owner of Dirt Candy, said she had fielded a flood of phone calls from other restaurants asking how her no-tipping policy was working.
“I think that restaurants will have to do this,” said Cohen, who pays servers at Dirt Candy US$25 an hour, well above the US$7.50 for tipped workers that will go into effect in New York at the end of the year. “How else do you compensate for this extra money you’ll have to pay?”
Like many owners, Cohen has long wanted to close the yawning earnings gap between those who prepare the food and those who serve it. Tips are not shared with the kitchen staff, whereas the revenue from certain types of surcharges and higher menu prices can be distributed to everyone.
Restaurateurs tick off a long list of reasons for being drawn to the idea. In some cities like New York, where tipping is subject to a confusing welter of federal, state and local regulations and tax laws, eliminating it would simplify bookkeeping. Managers say it would also allow them to better calibrate wages to reward employees based on the length of their service and the complexity of their jobs.
Several also cited research showing that diners tend to tip black servers less and that the system can encourage sexual harassment of women.
Still, many fear a backlash from their customers and servers.
Although mandatory service charges are common around the globe, restaurant tipping is deeply ingrained in the American psyche. Owners worry that potential diners will see significantly higher prices without realizing that they include gratuities. Restaurateurs also worry their best servers will leave.
“The tipped culture is still what draws many people into our industry,” said Christin Fernandez, a spokeswoman at the National Restaurant Association. While the association estimates that the median hourly earnings for tipped servers are between US$16 and US$22, waiters at high-end restaurants can earn much more.
Chelsea Krumpler, a waitress at Manos Nouveau in San Francisco, said many waiters she knows were skeptical of her US$25-an-hour wage and no tips. But she says she is earning as much as before with no worries about slow nights.
“It’s a little more secure,” said Krumpler, who has worked as a waitress for seven years. The policy has also drawn the staff closer together. “It’s more of a family,” she said.
Although the no-tipping idea is generating a lot of discussion, the number of restaurants that have signed on is still tiny, and they tend to cluster near the higher end of the price spectrum.
Most are adopting a wait-and-see attitude.
“We don’t want to jump on the trend,” said Akop Paronyan, general manager of E&O Kitchen and Bar in San Francisco.
With further mandated wage increases scheduled, Paronyan said the restaurant does need to be prepared. He is researching a hybrid model, where guests might be charged a mandatory 10 per cent service charge and then encouraged to add a 5 to 10 per cent gratuity.
Brian Keyser, the owner of Casellula restaurant in midtown Manhattan, would prefer to end tipping but does not think his staff or his diners are ready to accept it.
Now he must contend with a minimum wage for tipped workers that is rising in New York. That means giving his servers a US$2.50-an-hour raise – even if they are already pulling in about US$25 an hour in tips. “I have a kitchen full of people making far, far less than that and I would love to give them that money, but I can’t,” Keyser said.
It’s about perception… It’s not just about the dollars you’re spending, but what you think you’re spending
For many industry veterans, the business model is changing at such a rapid clip that they are not certain how to respond.
When Daniel Patterson first started working as a chef in the early 1980s, he said, labour used to account for about a third of total costs, and owners could enjoy a 10 to 20 per cent profit. Now, as a partner in five San Francisco Bay Area restaurants, Patterson says labour costs eat up about 40 to 45 per cent of the budget. At the same time, rent costs are skyrocketing.
“Even a good restaurant doing a lot of business that’s popular on every level, is bringing 2 per cent or 1.5 per cent to the bottom line,” he said. “It’s like a not-for-profit.”
Coi, Patterson’s two-Michelin-star restaurant, has had all-inclusive pricing since it opened in 2006. He tried the same strategy when he opened Aster in the Mission District a few months ago, and quickly realized it was not going to work.
“I really believe in that model, but our customers didn’t want it,” Patterson said, because they thought it was too expensive. “It’s about perception,” he said. “It’s not just about the dollars you’re spending, but what you think you’re spending.”
The next phase of the minimum wage increase in Seattle is pushing Brian Canlis, a co-owner of the upscale Canlis restaurant, to consider a pricing system that includes tips for 2016.
“I’ve got to have a hierarchy of pay,” Canlis said. He employs 96 workers to serve six meals a week. If the dishwasher earns US$15 an hour, then the line cook needs to earn at least US$18, he said. And then what about the sous chef, and the waiters? “There’s a cascading effect,” he said.
At the Walrus and the Carpenter, owner Renee Erickson has been adjusting her no-tipping experiment. Although she originally wanted to adopt an all-inclusive menu, she “worried we weren’t going to have the opportunity to explain why our prices were so much higher than the restaurant right next door.”
Instead, she added an 18 per cent service charge. But it did not generate enough money to cover the added labor costs. So she bumped the charge up to 20 per cent and shrank the owners’ share.
As the weeks went by, she and her partner kept adjusting the per centage that went to the kitchen workers. To get the staff on board, she decided to let everyone see the payroll spreadsheets, so they could understand how the money was being allocated.
“We’ve gotten a lot of great support and feedback,” she said. And at two new restaurants Erickson is opening, there will also be no tips.
At Ivar’s, eliminating tipping has been a success, said Donegan, the chief executive – thanks in part to the summer tourist season and a booming economy. Since the policy went into effect four months ago, wages have risen between US$3 and US$12 an hour, he said, with the lowest-paid worker earning US$15 an hour. Everyone, including part-timers, has health insurance and a 401(k) retirement plan.
The No. 1 complaint from customers? The prohibition on tips. So while the menu still states that prices include service, the credit card slips now have a line that reads: “If you INSIST on leaving a tip, write it here.”
Experimenting with no tipping
Quote
Originally Posted by killramos
