Is Now the Time to Eliminate Tipping?

Birchwood Cafe went to a no-tipping policy last summer in order to build a stronger community between the front of the house and the back of the house.

Like it or not, the coronavirus has offered restaurants a reset button. And some local restaurateurs are considering taking advantage of this opportunity to eliminate tipping and go to a flat administrative service charge which benefits both front- and back-of-the-house employees.

"I have some reservation about this because the historical expectation is that you will get tips," said attorney Jason Raether of Pruvent PLLC in Minneapolis, during a weekly call with restaurant owners set up by Susan Eder of Cue the Accountant. "The laws on this are not clear. It’s a change in an industry, and like most cases the change will happen and then the laws follow."

One of the reasons behind the move is parity.

A customer’s dining experience is the result of a multitude of people in a restaurant from the hostess to the cook to the food runner, and yet the only one who "owns" the tip is the server. Management is not allowed by law to interfere in the tipping relationship. They can’t, for instance, suggest servers share the tips with wait assistants or dishwashers. Many servers chose to share a percentage of their tips with the back of the house, but it’s their individual decision on how much to tip out and to whom.

In 2018 Surly Brewing Co, settled a class-action lawsuit alleging mandatory tip pooling, for $2.5 million. So tips have become even more of a hands-off issue for management.

But now we have a new normal, and equity between FOH and BOH may be the next brave new world.

Tracy Singleton, owner of the farm-to-table Birchwood Cafe, already went through the exercise before COVID-19, when they decided to go to a no-tipping model last summer.

One of the myriad reasons why restaurateurs have been reluctant, Singleton said, is the "loud server voice about taking away their livelihood—now that’s not an issue." Everyone’s livelihood is endangered.

That unified voice is also the reason Minnesota doesn’t have tip credits, many industry watchers say.

"Before COVID 19 it was not an easy path, now the opportunity is there," Singleton said. "Hopefully our guests will start to have a greater understanding of the challenges to restaurants' business model and they will be accepting and understanding if more businesses go the service charge route.

"What I don't think people (customers) fully grasp is that restaurant are a low margin business — at Birchwood we pay our employees more (since we eliminated tipping and don't look to our customers to subsidize our pay)  and we pay more for our food—and as we begin to contemplate reopening, we are  looking at a future with decreased revenue and increased costs (masks and gloves and sanitizer, better ventilation, even more strident cleaning, upgraded POS/ordering systems, touchless bathroom features, the list goes on...).  It's a serious hurdle to overcome. But I do think our fair wage share will be a contributor to helping us survive the pandemic."

Reaction was mixed when they decided to do it, she said, but equity is part of their DNA as a restaurant. They held several meetings with staff before they rolled out the program. They did their best to offer current staff a wage and benefit package that was equal to what they were earning before, she said—although that wasn't the case for everyone. "Our wage structure is the same for new servers, cooks and dishwashers," Singleton said. "We did a one wage structure for existing employess so we could keep them and then created a new one for new hires. The new hires are hired at an hourly rate that is less than what servers were making with tips however we give them a path to a higher wage and to salaried leadership positions. At least that was the plan pre COVID19."

She stressed all the benefits of going to this structure to staff, including that their pay is no longer "at the whim of a guest." Having all staff make a living wage is a benefit servers saw as well. 

To offset these costs, Birchwood added a 15 percent Fair Wage Share service charge to in-restaurant dining, take-out and delivery orders. They have suspended it for their services during the pandemic, and are instead charging a 15 percent Staff Support Fund fee that helps out both the employees working and those who were laid off. 

Before attempting this major switch, there are some guidelines, attorney Raether pointed out.

Employees need to be informed and presented a written policy. "If you’re bringing back a server, you may have to give a slight raise," he said. "When they sign their employee handbook, that’s when they’re (formally) informed about why you aren’t allowing tipping."

But paving the way with a lot of communication on the subject and stressing how it uplifts the entire staff makes it more palatable.

It won’t surprise anyone, he adds, that job conditions have changed. And while server salaries may be lower, the employees in the back of the house will be seeing more in their paychecks thanks to raising the meal prices or tacking on a service charge that is the equivalent to the15 to 20 percent tip customers are used to paying.

One thing that can derail the process is if some servers accept tips and others follow the rules. Make it clear that servers are not allowed to ask or accept tips, he said. Give them a script of what to say if a customer wants to tip.

"If you’re going to implement this, know that some will leave," he said. "What you can’t do is allow some employees to take tips and not others."

Customers need to be educated on this as well. Send out an email to your mailing list explaining why you’re going this route. Post the policy and the fee on your website and at the bottom on your menu in a font size that can be easily read. Also include it on placards on the table and at the bottom of your checks.

"Your receipt should state: ‘We are a no-tipping establishment. We can pay our staff a living wage,’" he said. Remove the tipping line from your credit card receipt if possible.

Above all else, be sure the customer knows about any additional charges added to their check. There’s currently a class-action lawsuit for Blue Plate Restaurant Co. from a diner who alleged that he wasn’t notified of the 3 percent surcharge for health and wellness before he paid. Blue Plate is not the only restaurant group adding the surcharge and if customers disagree with the charge, most restaurants will remove it from the bill.

What will make this no-tipping model more palatable is if more restaurants decide to go to this model. You may lose your top servers in the short term, but the upside in this tight labor market with less immigration feeding into it, you may be able to pay a living wage and fully staff your kitchen. 

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