No Tips, Please: Minimum Wage Hikes Change Restaurant Bills

Source: iStock

Source: iStock

In pretty much every restaurant you visit, tipping is standard procedure. It’s a source of controversy and highly charged opinions, and is the bane of existence for many patrons, no matter how frequently they dine out. As it turns out, tipping procedures are also becoming a problem for restaurant owners in certain cities, and some executives are doing away with the practice of tipping altogether. It may save you the mental math of calculating 15 to 30% of your bill after a meal, but there’s a tradeoff — it’ll likely mean higher menu costs.

The main reason for beginning no-tipping policies, restaurant owners say, is that it helps to create a better system to handle the rising minimum wages in several cities across the country. Restaurants who are switching to this sort of system are normally on the high end (it will probably be a while before Applebee’s begins a no-tip policy), and typically are located in places like San Francisco, Seattle, and New York City — all of which are seeing huge spikes in the base salaries of servers and minimum wage workers.

Minimum wage rises leads to no tips

Cities like Seattle, which is slated to raise the minimum wage to $15 per hour over the next few years, haven’t gone up in flames because of minimum wage hikes. But even though cities are adjusting, government budgets aren’t the only things needing to be tweaked. Perhaps the biggest challenge is that people’s perceptions of wages and hierarchy need to shift a bit, too. Case in point, several employees at the payment processing company Gravity Payments left when the salaries of their coworkers got a huge bump to $70,000, and their salaries stayed relatively the same. It’s a dark truth that some people seem to be more content with their pay when they know someone else at the company is making less than they are.

Right or wrong, pay hierarchy is at least one of the reasons some restaurant owners are experimenting with various ways of ending tipping policies forever. That includes the upscale restaurant Canlis in Seattle, which according to The New York Times is considering a pricing system that would exclude tipping starting in 2016. “I’ve got to have a hierarchy of pay,” co-owner Brian Canlis told the Times. Of Canlis’ 96 employees, when a dishwasher starts earning a minimum wage of $15 per hour, line cooks, sous chefs, and waiters need to be earning more. “There’s a cascading effect,” he said.

Trend leaders

Source: iStock

Source: iStock

Some restaurants have already started the trend and are the guinea pigs for the rest of the industry. Certain places add a flat service charge of 18-20% on the end of bills, while others reflect it in higher prices on the menus. But not everyone has bought into the idea, even though restaurant executives see the value. “I really believe in that model, but our customers didn’t want it,” Daniel Patterson, a partner in five San Francisco restaurants, told the Times. One of Patterson’s restaurants, Coi, has all-inclusive pricing. But the same model didn’t work at another one of his restaurants in the city.

For other restaurant owners like Amanda Cohen in New York City, changing the model is more a product of growing up in the industry. Cohen earned $8 an hour as a cook in her first jobs, but watched the servers in the same restaurant make $40 an hour on good nights. “I wanted to figure out a way that I could…bring up the back of the house’s wages without taking away too much from the servers, to make a much more even system,” she told The Washington Post.

Cohen’s vegetarian restaurant, Dirt Candy, now tacks on a 20% “administrative fee,” which legally allows her to split the gratuity among her entire staff, including those people preparing the food. The starting salary for every employee at Dirt Candy is $15 per hour, almost twice the minimum wage in New York City of $8.75. “Everybody works for me,” said Cohen. “I should be the one to pay them.”

Better staffing, service?

Though some critics say a no-tipping policy isn’t an incentive for servers to be on the top of their game, those who have tried it say it’s brought their staff together in a more unified approach and has allowed the management to take care of customer complaints about servers, instead of customers levying punishments with small tips.

One Pittsburgh eatery, Bar Marco, is completely transparent with its employees about pay structure and other financials, and has tripled its profits in the few months it has switched to a no-tipping policy. Instead, employees receive a base salary of $35,000 with room for bonuses based on profits, health care, 500 shares in the business, and paid vacation. It sounds a little more like an office job than a server position, but it’s working so far, founder Bobby Fry told Entrepreneur.

The truth is despite the success in many of these cases, they’re still all experiments and are the exception to the rule. It will probably be several years before you can totally stop doing quick restaurant math when your bill arrives. However, it’s showing that there’s more than one way to have a restaurant experience that attracts employees, makes them want to stay, and still manage to provide a pleasant dining experience for guests. Above all, buy-in from the restaurant industry itself will determine whether or not it’s a success. “I’m not forcing anybody to work for me,” Cohen told the Post. “This isn’t a labor camp. People are here because we’ve explained it to the servers, and they’re excited, and they want to be a part of this system.”

Follow Nikelle on Twitter @Nikelle_CS

More from Money & Career Cheat Sheet: