Market Watch

Will Eliminating Tipping Improve Restaurant and Bar Service or Make It Worse? [UPDATED]

This week, one of the best-known restaurant groups in New York, Danny Meyer’s Union Square Hospitality Group, whose restaurants include highly regarded The Modern and Gramercy Tavern, announced they are eliminating tipping at all 13 of their concepts. The change will take effect over the next year.

Meyer literally wrote the book on service. It’s called Setting the Table: The Transforming Power of Hospitality In Business, and it's practically required reading for top-notch service personnel. He’s right that tipping is fraught with problems. There are regular reports of servers being treated poorly by exceptionally vindictive customers who leave an ugly note instead of a tip over slights, whether perceived or real. Many times, the issue is nothing the server has control over, like how long the kitchen takes to prepare food.

Additionally, the system is horribly complicated and many restaurant employees don’t benefit. Kenneth Besserman, general counsel for the Texas Restaurant Association, outlined several of the legal guidelines on tips and tip pooling, a process in which all tips are gathered up and split up among several employees. He says that among those who do not benefit from tipping are staff who would not be reasonably and customarily tipped, including management, cooks and dishwashers. The result is that in certain establishments, a new, unskilled server could potentially make much more than an experienced cook.

That’s one of the problems Meyers seeks to solve. In a letter posted to the Union Square Hospitality Group web site, he says:

“There are countless laws and regulations that determine which positions in a restaurant may, and may not share in gratuities. We believe hospitality is a team sport, and that it takes an entire team to provide you with the experiences you have come to expect from us. Unfortunately, many of our colleagues — our cooks, reservationists, and dishwashers to name a few — aren’t able to share in our guests’ generosity, even though their contributions are just as vital to the outcome of your experience at one of our restaurants.”

Employers have the upper hand when it comes to controlling tips, especially those paid by credit card. Besserman says well over 80 percent are paid by credit card these days, and described how restaurant managers are supposed to deal with them. “The manager keeps a record of tips. For cash tips, most establishments say, “Okay, Joe Server, you made $100 of tips” and then require the employee to sign a form.”

The problem is that unless tips are tracked by a point-of-sale system equipped to do so, servers are relying on managers to keep good logs — and to provide access to those logs. “It’s other people’s money, so the most important thing is to be completely transparent about it,” recommends Alex Gregg, co-owner of Houston bar Moving Sidewalk. He keeps a log book that employees can view at any time without having to ask.

However, an anonymous source says that some employers use their positions of power to shame employees for asking to see the log book. We asked Gregg about that issue, and he says that it can be an “uncomfortable moment” if employees have to ask to see it, which is why he makes it readily available.

Another issue is unethical employers who brazenly skim tips for themselves or to cover restaurant costs, which is completely illegal. In response to our most recent story on the Gaslamp debacle, which included allegations by former employees of tips and wages being withheld, the Houston Press has received numerous emails complaining of the same problem.

“Tips are the property of the employee and owned by the employee,” says Besserman. He recommends that employees who believe they are being shorted contact the Texas Workforce Commission or the Department of Labor to make complaints about illegal or unauthorized deductions.

With that said, employers do not legally have to pay out tips nightly and can opt to include them in an employee's regular paycheck, according to Besserman. Furthermore, some deductions are legal with proper notice, such as credit card processing fees, court-mandated child support deductions, fees for training courses and costs for uniforms provided by the employer.

However, the tip system also has many benefits. It puts the financial fate of an employee at least somewhat into his or her own hands. Gregg says, “The beautiful thing about tipping culture and tipping structure is that it’s instant gratification. If you want more money, you can go to work and get a raise that day. You get paid for the job that you do. Sometimes more and sometimes less, but you don’t have that uncomfortable conversation with the boss. ‘Hey, I’ve been here six months…' and all of that to ask for a dollar-an-hour raise."

Lee Ellis of F.E.E.D TX restaurant group, which runs Liberty Kitchen and the newly opened Lee’s Fried Chicken & Donuts among others, related his observations dining in a tip-less Los Angeles restaurant a few months ago. “The service was okay. The bar service was really slow. I didn’t know until the end of dinner there was no tipping. I ended up having a conversation with the server. He works four- to five-hour shifts and still has side duty to do. He makes $26 an hour. So he walks out with about $125 every night. That’s it. I just don’t know how someone survives on that and they don’t have the opportunity to make more money than that. My tip that night would have been $50 or $60.”

Servers and bartenders on busy nights in popular bars and restaurants can make $250 to $300 per night, so it is hard to see why they would choose to work in a restaurant that doesn’t allow tipping.

That inability to attract and retain staff is exactly why, according to the SFGate web site, Bar Agricole and Trou Normand have abandoned their own tip-less experiment. Owner Thad Vogler is quoted as saying in an email, “We haven’t been able to keep servers. We were hoping more restaurants would switch but, for now, it’s been impossible to compete with more traditional places in keeping front of the house staff who prefer the control and upside of the tip system.”

However, Gregg acknowledges the inherent disparity in the current system and thinks overall, Danny Meyer’s announcement is a good thing. “The back of the house — those guys don’t make enough money and the reason is because they don’t work for tips. On the other hand, servers and bartenders — the house is only paying them $2.14 [an hour]. If the kitchen staff isn’t making enough, why not just raise menu prices accordingly?”

Additionally, the tipping system rewards servers and bartenders for a job well done. “Without tipping, your rock stars have no incentive to work harder and the ones who are not rock stars have no reason to get better,” says Gregg. So there is no reason for mediocre employees to move along and find work they are better suited for. 

We asked Ellis if he agrees with Gregg's perspective, and he said, “Absolutely. Let’s say your chef has a special for the night that’s $50. What’s the incentive for them to sell it? Also, you’re never going to weed out the weak server, because everybody is going to be carrying everybody.” That’s also a problem with restaurants that pool tips, according to Ellis. 

He did point out one dining situation in which the tip line should disappear: counter service. There’s no need to tip in a situation where you pick up your own food, get your own drink and clean up your own trash, but that tip line on the check instills guilt. Diners who don’t want to look like jerks feel as if they have to write something on that line, even though dining etiquette says that’s not necessary. 

Meyer is about to engage in a grand experiment — one that the rest of the restaurant world will learn and benefit from. As Bar Agricole and Trou Normand have already discovered, it may be one with unintended consequences.
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Phaedra Cook
Contact: Phaedra Cook