The Tipping Point - Is Now the Time for the Restaurant Industry to Hire Differently?


Restaurant spending has surpassed grocery store sales, and with the number of jobs in the restaurant industry running a very close second to that of the manufacturing industry, restaurants play a much larger role in our economy than most Americans may think.

With the current impact of the COVID-19 pandemic on the global population and economy, there is no doubt that many industries, including the restaurant industry will now be transformed forever. The enormity of the impact that COVID-19 is having on the 15.3 million people in the United States who are employed in the restaurant industry is devastating, and, at the same time, it does present an opportunity for the industry to fix one of the biggest challenges it has faced before the pandemic hit: finding and retaining employees.

The question: Is now the perfect time to get rid of tipping and start paying all restaurant employees a living wage? The practice hasn’t worked in the past, but can it work now? Would this be the something positive the restaurant industry is hoping will come out of this unsettling time?

History

First, let's talk about where the practice of tipping even came from and why it has become the standard in this industry?

In the 1850's and 1860's wealthy Americans discovered the custom while traveling in Europe. Wanting to exhibit their worldly wisdom, and share what they learned from vacationing abroad, they brought the practice back with them and began tipping as well in the US when they returned from vacation.

The growth of tipping in the US is further linked to the racial oppression of the post-Civil War Reconstruction period. The workers who were earning tips were almost exclusively newly freed slaves who had minimal occupation options available to them and were taking mostly menial positions. The restaurant industry, as well as a few other industries, such as porters and the hotel industry, wanted the right to hire these workers but pay them next to nothing.

The first minimum wage law that passed in 1938 as part of the New Deal under Roosevelt, said that you have the right to the minimum wage either through wages or through tips. This gave tipped workers the right to a zero-dollar minimum wage and created a two-tiered system that allowed for an employee to not be paid at all by their employer. Many restaurateurs realized that they stood to benefit from the opportunity to subsidize a worker’s pay with guests’ tips.

The myth about service and tipping

The number one myth about tipping is that it improves the quality of service. But the data consistently shows that there is little to no correlation between tips and performance. The amount of the tip has much more to do with the customer and their individual social conventions. Tip amounts are more often based on the customers’ financial and psychological situations and the cultural norms they have grown up with. These factors may include whether they are male or female, old or young or even whether they have worked in a restaurant before.

The Benefits of No Tipping for the Restaurant Owners

Abolishing tipping might seem scary for restaurant owners, particularly from a financial perspective at first, but the benefits are clear.

This shift will give the restaurant industry the ability to compete with other industries for more skilled workforce because it offers paid benefits and a regular paycheck. Front-of-the House jobs can therefore be marketed as a career and not just a temporary job you take when you need extra cash or when you are off from college in the summer, which these jobs are typically thought of.


One of the biggest challenges in hiring and retaining employees is that This becomes close to 50% of the America’s workforce is comprised of millennials, a generation looking for a work/life balance and incorporating a job that still allows them personal and social time. They want a consistent schedule, with a consistent paycheck and career growth. The restaurant industry misses out on this pool of employees if it doesn't find a way to adjust the business model to their needs. Paying a living wage could certainly be an answer and stop the revolving door and the high percentage of staff turnover found in the industry..

Reduced theft can also be attributed to a no tipping policy. It is far from unusual for restaurant owners to experience tipped employees implementing less than ideal honorable practices. Giving away free food or drinks to please the customer and increase their tip is a common occurrence. In a survey of nearly 700 US restaurants, less than 60% of servers claimed to have given free things to customers as a way to increase their tips.

Eliminating tipped employees can also create a better working relationship between FOH and BOH staff. Cooks, dishwashers, and other back-of-the-house employees tend to feel like they make less than their server colleagues, especially during busy shifts. This often can cause dissension between the two areas of the restaurant. Removing tipping can take away this barrier and have everyone working as a team.

Then there’s the legal risks, costs, admin and paperwork associated with tipped employees. The rules and regulations surrounding tipping and the reporting of earnings are numerous and complex. The restaurant owners are required by law to report employees’ incomes, including tip, as well as to withhold employee taxes and pay your share of FICA taxes on that income, but there is no clear way to know what those cash tip earnings are. Employment laws and regulations also require employers of tipped workers to notify employees about tip credit claims and document their compliance with these practices and notifications. This is costly and time-consuming to get right and can land up costing them more if they don’t comply.

The Advantages of No Tipping for the Previously Tipped Employees

For previously-tipped workers, the elimination of tipping can offer a consistent, higher paycheck. The amount a tipped employee makes can be dependent on factors such as what time of day their shift is (i.e., lunch versus dinner) or factors like the weather. A server who works three dinner shifts and two lunch shifts will tend to make more money than a server working the same number of hours but with the shifts reverse, two dinner and three lunch shifts. Same as the weather, sunny days tend to be busy then rainy days, effecting how much a tipped employee will make.

As a salaried employee, they will also then have access to paid benefits and a career path where they can build experience and have more opportunity for a trajectory to “move-up” and earn more money.

There is also the often, overlooked point about sexual harassment. With income reliant on a customer’s personal satisfaction, sexual harassment has become commonplace and staff may feel they need to put up with inappropriate behavior from customers in order to garner their gratuity. Research has shown that women working in restaurants with lower minimum wages than other industries in a state are up to twice as likely to report being sexually harassed by a customer than women who were paid their state’s minimum wage. With statistically women making up most of the tipped workforce, this point cannot be taken lightly.

Why the no-tipping movement hasn't worked in the past

To start off with, it’s a cultural and a habit. Customers currently feel awkward and rude not tipping. As mentioned earlier in the article, they also believe it gives them control over the quality of service they receive, which is, of course, a myth and not actually the case.

There is also a false perception as to how much customers feel like they are paying. While restaurants are just incorporating the cost of the tip in the price, and not actually increasing the cost of a meal out, the perception and “sticker shock” customers experience reflects on the restaurant’s expensiveness which some believe reduces demand.

Restaurants and tipped employees have also become accustomed to the “under-the-table” aspect of tipping culture, which allows them to avoid being taxed on the full amounts. However, there are many statistics that argue non-reporting can actually cost more, and not tracking and reporting income makes it very difficult to manage and understand where the business really stands financially.

But the real reason it hasn’t worked before is because the industry was not in it together. When this cultural industry change is not implemented across the industry, it is confusing and doesn’t allow the restaurant owners, employees or consumers to understand or to adapt to the new habit.

Why the time is right now

The question is, does universal closure of restaurants in the US give the industry the time to reboot? It may be a golden opportunity to get on the same page and get the industry working together to make the change consistently and successfully. The industry now has the time to educate, inform and set expectations for restaurateurs, employees and consumers.

It definitely would not be an easy task - it means changing not only the countries mind set, but the way the industry does business as a whole. But could it be end up being an all-around win? Could it benefit the restaurant owners, the employees and customers?

During this incredibly difficult time, people in the industry are looking for a silver lining and a way to come out of this crisis stronger then when they came in. My question, is this the perfect time to change the country's tipping policy once and for all? Could this be the positive change the industry is looking for?

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