The prestigious New York restaurant group run by Danny Meyer announced this week it is eliminating tips for its wait staff. Menu prices will go up, but diners will be spared the mental acrobatics required to calculate an appropriate gratuity, and wait staff will be paid a more consistent wage.
Abandoning the long-entrenched practice of tipping is a major departure from the restaurant norm, but in virtually every other industry, it’s management — not customers — who decides what employees should be paid.
At stake is something more than the tip-giving habits of American diners. If the idea spreads, and tips become a relic of restaurant history, it could transform the sometimes-fraught relationship between food servers — who have long relied on tips to boost their wages — and cooks, who are cut off from this stream of earnings.
Do restaurants need to accept tips?
Restaurants and servers could survive perfectly well without tips, provided they can get that money in some other way.
This is really the key insight, when thinking about how tips work. It’s not extra money. It’s part of restaurant revenue, a somewhat unorthodox mechanism restaurants have relied on to pay their wait staff.
Even if there were no tips, waiters and waitresses would still need to get paid. And the money would still come from customers. It would just appear on a different line of the bill, be it higher menu prices or an automatic service fee.
Which restaurants are eliminating tips?
This week’s announcement came from Union Square Hospitality Group, which controls such renowned eateries as Gramercy Tavern and Union Square Cafe in New York.
Other high-profile, high-end restaurants experimenting with their tip policies include the French Laundry in California, Atera in New York, and Next in Chicago. To date, no major Boston-based establishments have joined the movement. [update: several readers have pointed out that meals at Select Oyster Bar in the Back Bay include an automatic 20 percent gratuity, no further tip required.]
Why do we tip food servers?
Tipping actually has its roots in old Europe, where European aristocrats used to give bits of money to people who provided menial services, like carrying their bags. Vestiges of that old habit still persist — like when you tip your porter at a hotel — but perhaps nowhere has it become as entrenched as in the restaurant world.
While there are some places, like China, where tipping is frowned on, it’s actually fairly widespread. All around the world, there’s more to restaurant bills than what you see on the menu. In some countries a service charge is added to the bill automatically. Elsewhere, it’s customary to leave a few extra coins.
In the United States, though, tips aren’t just a top-off for good service. They can make up a substantial part of a waiter’s earnings.
And even with those tips, the earnings don’t amount to much. The average waiter or waitress takes home just over $20,000 per year, or roughly $11 per hour, according to the Bureau of Labor Statistics.
One reason for the low pay is that tips don’t supplement regular wages. They replace them. In most states, restaurants aren’t required to pay their wait staff a full minimum wage. They can pay what’s called the “tipped minimum wage” — currently $2.53 at the federal level and $3 in Massachusetts — on the assumption that tips will make up the difference.
When tips fall short, restaurants are required to top off their employees’ paychecks, but often the tips make up the bulk of take-home pay.
What’s the point of tipping?
It’s common to assume that tips promote good service, with the promise of a fat tip providing a strong incentive for waiters and waitresses. But things don’t actually work this way.
Customers rarely tip based on wait staff performance. They base their calculations on all manner of other things. Some always give a fixed amount (15 or 20 percent), others punish a waiter for slow service — which might say more about the kitchen — and many restaurants actually share tips among food servers, bussers, and others, thereby severing the link between individual performance and individual pay.
One thing tips do accomplish is to hide the real cost of the meal. Everything on a restaurant menu costs 15-20 percent more than the list price suggests, because everything gets rolled into that final tip (assuming, of course, that the diner plans to leave a reasonable tip, which most do.)
But when perusing the options, customers commonly overlook that fact, opting for the $17 striped bass with only a vague idea that it will actually cost $20 once the tip is factored in.
Tipping also provides some tax benefits. Restaurants are spared the expense of paying social security taxes for the money earned via tips, partly because the amount of these tips isn’t really under their control. At the same time, employees sometimes conceal their cash tips from the IRS. At one point, the agency estimated that workers were collecting $11 billion in unreported tips each year.
Who gains in a world without tips?
It won’t be the customers. One way or another, they’ll end up paying the salaries of servers — whether through mandatory service fees or higher prices.
For waiters and waitresses, too, the benefits are unclear. They should get more consistent earnings, but there’s no guarantee their wages will go up. It’s possible managers will discover that customers were tipping quite generously, relative to what’s actually needed to hire and retain good servers.
One group that stands to benefit are cooks. Tips are exclusively a front-of-house affair, something servers and bussers can earn, but cooks cannot — despite the fact that cooks play an essential role in the dining experience by preparing the food and handling the presentation of the plates.
There’s not much restaurants can do to rectify this. It’s actually illegal for restaurants to pool tips and distribute them between servers and cooks alike.
Eliminating tips could change all that, taking remuneration decisions out of the hands of customers and giving managers greater flexibility to distribute rewards between cooks and servers. And with some restaurants struggling to find cooks, higher wages may be part of the solution.
Are we headed to a future without tipping?
Maybe, but the anti-tipping movement has failed many times before. Early in the 20th century, a number of cities and states actually banned tipping, but the practice proved more powerful than the law.
What’s different, today, is that restaurants themselves have taken the lead.
Still, there is a lot of room for skepticism, not least because the anti-tipping movement is being spearheaded by high-end restaurants, which have some distinct advantages, including an upscale clientele more willing to open their wallets for the highest-quality food.
For the anti-tipping movement to hit the mainstream, it will have to prove its worth at a broader range of establishments, many of them with thin profit margins and each fearful that mandatory service fees and higher sticker prices could drive away customers.
More from Evan Horowitz:
Evan Horowitz digs through data to find information that illuminates the policy issues facing Massachusetts and the U.S. He can be reached firstname.lastname@example.org. Follow him on Twitter@GlobeHorowitz