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No Tipping Restaurants

VIEWPOINTS[su_dropcap style=”flat”]W[/su_dropcap]ITH THE PRESSURE from many sources to increase the minimum wage, there has also come a movement to end tipping in restaurants and pay servers a higher hourly rate.

While tipping is discouraged or in even prohibited in some countries, tipping has long been a practice in the US. So, why now the push to end tipping?

Well, it seems there are two arguments in favor of ending the practice. One is that working for tips is demeaning and servers should be paid a living wage without having to depend on the restaurant patrons to provide a decent income. That theory of course is part emotional and part inaccurate. Most of us that have worked for tips didn’t find it demeaning, so that part of the argument is questionable. Then there is the assumption that servers don’t make a living wage. Of course there are some that don’t, but a lot of others do very well. Many servers make $40,000 to $65,000 per year, some of which is tax-free.

The other argument for eliminating tips comes more from restaurant operators. That is from the problem that employees in the back of the house make far less than servers and it is difficult to attract and retain good talent in the kitchens. This issue is a reality and has been for many years.

tippingSo, what happens when a restaurant adopts a “no tipping” policy? For starters they will have to pay servers something like $20 per hour, which would provide some $40,000 per year to a full-time server (all taxable). Many servers will be making 2/3 of their prior income. Now to fix the inequity issue with the back of the house personnel, they will also need a bump of perhaps $5 per hour +/- to get them to the $40,000 level. Profit margins in the restaurant business simply can no absorb that sharp increase in payroll and related taxes, so menu prices must be increased. Those few restaurants that have gone with a “no tipping” policy, or plan to in the near term, have had to increase menu prices from 20 to 25%.

So, who are the winners and losers in this move? In theory the restaurants win in that they can pay more to the kitchen staff and thus attract and retain better personnel. However, that will work only if the higher wages increase the labor pool. They may also find that their best servers gravitate to restaurants that keep tipping. Restaurants run the risk of pricing themselves out of the market against those that keep tipping. I think that the theory that restaurants will win is very suspect.

Patrons no longer have to compute a 15-20% tip, but will pay 20-25% more for their meal, plus that increase will also carry an increase in sales tax where the tip does not. So, it is hard to argue that the patron wins, even if service doesn’t suffer as many predict it will.

In short some servers will win, some will lose. Kitchen workers will get an increase in many cases. Some restaurants will simply fail, and customers will pay more for their meal than they did before even with the tip added.

The only sure-fire winner in a “no tipping” movement is the government. They stand to gain more in both payroll taxes and sales taxes.

Do you favor no tipping? Do you think no tipping will have a negative impact on service?

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Ken Vincent
Ken Vincenthttp://sbpra.com/KennethVincent/
KEN is a 46 year veteran hotelier and entrepreneur. Formerly owned two hotels, an advertising agency, a wholesale tour company, a POS company, a leasing company, and a hotel management company. The hotels included chain owned, franchises, and independents. They ranged in type from small luxury inns, to limited service properties, to large convention hotels and resorts. After retiring he authored a book, “So Many Hotels, So Little Time” in which he relates what life is like behind the scenes for a hotel manager. Ken operated more that 100 hotels and resorts in the US and Caribbean and formed eight companies. He is a firm believer that senior management should share their knowledge and experience with the next generation of management.

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