Why the Country’s Top Restaurants Are Eliminating Tips

This article was originally published on March 25, 2015. We are republishing it on the heels of Danny Meyer’s announcement that he will eliminate tipping in all of his Union Square Hospitality Group restaurants over the next year. Read Danny’s letter to the USHG community here.

Last fall voters in Oakland, California approved a measure to raise the city’s minimum wage from $9 an hour to $12.25 an hour, effective this month. Allison Hopelain, co-owner of Oakland’s Camino restaurant, knew it was time to make a major change in her business model.

“The only people who were minimum wage employees were the front of house — the bartenders and servers,” she says. “They would be the only ones benefitting from that, and they were the ones making the most money through tips. We decided to try to find a way so that all the employees could benefit.”

At Dirt Candy in New York City, Amanda Cohen faced a similar dilemma but for different reasons: she was having trouble hiring cooks. It was a first for her restaurant, which has always attracted enthusiastic vegetarian chefs because of its inventive meatless menu, and she needed a way to better incentivize the kitchen staff.

Both restaurateurs responded by getting rid of the traditional tipping model that has historically dominated the service industry.

Amanda introduced a 20% admin fee at Dirt Candy on top of the cost of the food, which comes to her as revenue. She redistributes the income to her staff according to their hourly wages. At Camino, Allison started out with a similar model — a 20% service charge — and has since folded that charge into the food, raising the prices of each menu item to reflect the entire cost of running a restaurant. Amanda says she plans to do the same in the next year.

We talked to both restaurateurs about restaurant life without tips — here are 10 things you should know.

1. You’ll be able to pay your back of house more. 

One of Amanda’s primary motivations for eliminating tipping was knowing that she wasn’t paying her back of house staff enough, and she couldn’t afford to pay them any more. “I was actually starting to lose cooks — cooks who wanted to work with me — because they couldn’t afford to live in the city anymore,” she says. “There are a lot of great food cities now, and you don’t have to work in New York to have an impressive resume. And these great food cities have a much better standard of living.”

Now, she’s paying them higher wages — more than the average restaurant — and has plenty of interested applicants.

2. Your front of house will have more stability. 

Blizzards, holidays, Mondays, Saturdays — so many factors influence a restaurant’s daily business and, ultimately, how much servers take home at the end of the night. Without tips, servers know how much they’ll make; income is fixed and guaranteed. Plus, they aren’t tipping anyone else out, so their money is their own. Amanda estimates that her front-of-house staff makes anywhere from $15-30 per hour, with shifts between seven and eight hours. “It’s more predictable, but I think it’s pretty close to what people make in a restaurant in New York,” she says. Plus, there’s no fighting for the busy shifts. “A Friday night is the same as a Monday night.”

Allison says Camino attracts a different type of server now that tips aren’t part of the compensation model. “It’s not for people who are in it for the quick buck. I think it’s for people who want some predictability and stability. It does add a lot of professionalism to the job.”

3. The tipping system can be unfair. 

“There are tons of studies that have been done — [the tipping system] is sexist, it’s racist, and it’s antiquated,” says Amanda. She didn’t feel like customers should be able to decide her servers’ salaries.

Allison has also found that the new system offers her front of house a bit of relief from the pressure of trying to get a big tip. “They can just do a good job without the underlying awkwardness of being phony,” she says. “That’s the ugly underside of being a waiter: there are times when it’s a little bit of a power trip [for customers].”

4. As an owner, you’ll have more control. 

For Amanda, tipping meant guests in the restaurant were paying her servers’ wages — not her, as the owner and their boss. “If we want to have a more cohesive restaurant system, I think we need to stop outsourcing our Human Resources to customers,” she says. In trying keep menu prices down, restaurants have hidden service costs, but the reality is that running a restaurant is expensive. Getting rid of tips allowed Amanda to pay everyone a fair wage from income that comes directly to her, as the owner.

5. You’ll see less turnover. 

Since changing her pay structure, Amanda has had no trouble finding enthusiastic cooks who want to work at Dirt Candy, and turnover is extremely low (at a new restaurant, that’s saying something). At Camino, Allison has also seen more security in the kitchen. While a few servers left after the initial change — Allison says they were ready to move on anyway, and that it wasn’t about the money — people have also been hired into the new system and have worked out very well. “The transition is definitely more challenging than hiring people into a new system,” she adds.

6. Your staff will have more opportunity to grow. 

Allison has given employee reviews every year, but no one in the front of house ever got a raise — most of their income came from tips. “There’s nothing that as a manager we could offer them for doing a better job.” Now, she has a new tool for managing and incentivizing front-of-house staffers, and there’s even motivation for them to grow into a manager position, since managers can be paid more than servers. Similarly, Amanda plans to start a bonus program once Dirt Candy starts hitting its numbers.

And even aside from compensation, Allison is finding that there are more opportunities for front-of-house staff members to develop new skills. People have to work a certain number of hours every week to be eligible for health insurance, so she will find extra projects for them during slow times so they will be covered. “We might have someone do prep work in the kitchen, or do inventory or office work,” she says. “It gives people a different view of what goes into the restaurant.”

7. Your teams will get along better.

Pitching in when needed means more interaction between the front of house and back of house in general, blurring those lines and providing more insight into different roles within the restaurant. There’s also more equity in pay; at Dirt Candy an entry-level worker may make $120 a night, versus $200 a night for a server. Before, the discrepancy would have been more like $80 vs. $250. “I think every job in the restaurant really is equally important,” says Amanda.

At Camino, some of the servers and cooks are housemates. “One of them said, our home life is better because it’s more equitable; it’s not awkward anymore,” says Allison.

8. Customers will accept the new system, but education goes a long way.

Both Amanda and Allison have received mostly positive responses from customers, but guests can be a little suspicious. Mostly, there have been questions such as, “What if I don’t like my service?” Amanda’s response: complain to the manager, just like you would in any other industry.

For her part, Allison has made an effort to reinforce the no tipping message at every stage of customer interaction. There’s an explanation on the website, a sign in the restaurant’s window, and a note on the menu; the host mentions it when seating guests, and the server repeats it when he or she drops the check. The team also removed the tip line from the credit card bill to make it clear.

Occasionally, Allison says, customers are concerned that the owners aren’t fairly distributing money to the staff. Well-intentioned guests have asked servers specifics about their compensation, which naturally makes servers uncomfortable and can get awkward. She’s had to reassure people that they aren’t being deceived. But plenty of people have applauded her, too, thanking her for doing away with tips.

9. Your costs will be redistributed.

Neither Amanda nor Allison has found that getting rid of tips affected their bottom line (though in both cases it’s early to tell), but Allison has had to redistribute costs. “It changes what the standards are of what we’re shooting for for food cost, labor cost, etc. so we’re trying to figure that out now.”

10. Paying for an experience may be the new norm.

As Amanda explains, a party of two at Dirt Candy may pay $100 for dinner. If they tip 20% and tax is 8%, that’s $128. If Amanda adds an admin fee of 20% instead of accepting tips, as she does now, the total is still $128. If she folds the costs into the the menu and raises the price of each dish by 20%, the bill is still — you guessed it — $128.

“It’s not really changing anything,” she says. “Instead of the tip, I get to take all the money in — that’s the only difference.”

Allison recently dined at Bar Agricole, another Bay Area restaurant that eliminated tipping about a month before she did. “The feeling that I wasn’t expecting was the refreshing feeling of, this is one complete experience and I’m paying this much to participate in that,” she says. “Not this is the amount of money that food costs, and this is the amount that service costs, and you start weighing and judging those things against those amounts. It just felt very complete.”

Photo Credit: Stephen Elledge