2 STEPS FORWARD, 1 STEP BACK: NO-TIP TREND PLODS AHEAD

Dining

Even as some early adopters of no-tip policies step back to their former tipping policy, a survey suggests that restaurants are continuing to adopt the no-tipping model, albeit at a more moderate pace.

In May 2016, Joe’s Crab Shack seafood chain of 130 restaurants across the U.S. said that 14 of the 18 locations that last fall initiated a no-tipping policy were returning to a standard tipping policy.

Other restaurateurs were returning to a standard tipping policy, including the owners of Bar Agricole and Trou Normand in San Francisco and Fedora in New York.

Customer and server dissatisfaction and a business climate not conducive to higher menu prices were among the reasons given for why the restaurants, which increased menu prices by about 20 percent to provide higher fixed hourly wages to servers and kitchen staff, returned to their former tipping policies.

Meanwhile, early adopter Danny Meyer and his restaurants in the Union Square Hospitality Group in New York are among those staying the course with no-tipping policies firmly in place.

From a payroll perspective, no-tipping policies let restaurateurs balance the effects of payroll costs and even out pay discrepancies between front-of-the-house servers and back-of-the-house kitchen staff. 

Tipping policies vary by state, but generally gratuities may only be shared with those who spend at least 80 percent of their time face-to-face with customers.

Front-of-the-house wait staff may pool tips to balance out the amounts received, but back-of-the-house workers such as dishwashers may not share in tips and may only receive a low, fixed wage, affecting retention. 

In a state such as New York, where a minimum-wage pay increase to $10 an hour for tipped employees was recently enacted, no-tip policies also may avoid such increases.

No-tip policies convert two categories of restaurant employees, each with payroll and recordkeeping requirements, to the single category of salaried employee.

Back-of-the-house workers may see pay increases under a no-tip policy, but servers at some mid- to higher-end restaurants, who may have earned $35 to $60 an hour in tipped wages may receive the short end of the no-tip stick.

Servers are not the menial, low-income workers they may be perceived to be and no-tipping policies may not be helpful to them, Richard McKenzie, an economics professor at the University of California at Irvine, said in a March 2016 study.

“Through tipping, servers effectively become commissioned salespeople, enticed to add to customers’ experience and company sales,” McKenzie said, which begs the question whether a steadier but lower income is sufficient for them to remain satisfied.

A recent survey suggests the answer may soon reveal itself.

Twenty-nine percent of restaurateurs plan to adopt a no-tip policy, 18 percent already have adopted such a policy and 17 percent said they may adopt such a policy if their competitors do, according to the 2016 American Express Restaurant Trade Survey, which in April 2016 randomly sampled 503 U.S. restaurants. 

Twenty-seven percent of restaurateurs surveyed said they would not adopt such a policy, and 10 percent were unsure, the survey said.

Thirty-nine percent of restaurateurs think the economy is to improve with expanded business opportunities over the next six months, the survey said. So, the tide may still be coming in on the no-tip trend.

Take a free trial of Bloomberg BNA’s Payroll Decision Support Network , your one-stop resource for reliable, up-to-date guidance and analysis in every area of payroll administration and compliance.

Follow Bloomberg BNA on Twitter @BloombergBNA and join the Bloomberg BNA U.S. and Global Payroll group on LinkedIn .