To Tip or Not to Tip: Restaurants Take on “No-Tip” Policy

Some restaurants in larger cities, like San Francisco and New York, have recently started to experiment with a “No-Tip” policy. Rather than accepting gratuities from patrons, restaurant owners have adjusted wages and menu prices to compensate for paying their employees higher wages. Part of the reason for implementing such a policy is to balance wage discrepancies between front-of-house and back-of-house staff.

In a traditional “tipping” environment, front-of-house servers have the potential to earn higher wages than back-of-house employees, like dishwashers, prep cooks, and line cooks. Since back-of-house employees are paid an hourly wage, they do not earn tips. Therefore, they can earn significantly less than a server. However, that is not always the case, and some servers earn less than back-of-the-house employees.

With a “No-Tip” policy, wages for both servers and back-of-the-house employees are more evenly balanced. While this is great for people stuck in the kitchen and behind the scenes, not all servers are happy with such a policy. In many instances, servers make less than they did when they were able to earn tips. As a result, restaurants are experiencing a much higher rate of turnover for front-of-house staff than before implementing the policy.

For the back-of-the-house staff, however, turnover has declined, and employee retention rates have increased. For instance, prior to the change, kitchen staff could average around $13 an hour, while servers were averaging $25 to $40 an hour. After initiating the policy, everyone was averaging around $30 an hour. While kitchen staff saw a drastic increase in their earnings, servers noticed a decline in their potential earnings.

Most of the restaurants that experimented with a “No-Tip” policy are now reverting back to a tipping environment for front-of-the-house staff. However, they are maintaining the higher hourly wages for kitchen staff. To offset the wage increases, initially most restaurants increased their menu prices by as much as 20%.

Now that they are switching back to a traditional tipping environment, they have reduced prices somewhat, but they are still higher than before, since they still need to compensate for the higher wages they are now paying kitchen employees.

Even with some restaurants switching back, not all have abandoned their “No-Tip” policies. In cities with a large number of European visitors, tipping is not something they are accustomed to and often do not do, even while visiting the United States, so having such a policy is beneficial for servers. In addition, for cities with pending minimum wage increases, the policy ensures the restaurants are already compliant with the new rates before they are passed and take effect.

Whether the no-tipping model will survive largely depends upon people’s ability to accept a new system, including consumers. Most consumers like being able to reward outstanding service with an exceptional tip, and, if they are not able to, then there is a risk they will take their business elsewhere.

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