Is it Time to Change the Tipping System in U.S. Restaurants?


By Stephanie Hammerwold

In 2013, the Freakanomics podcast had an episode about the practice of tipping. Whether it is deciding how much of a tip to leave at a restaurant or whether to drop some spare change in the tip jar at your favorite coffee place, tipping is very present in our daily lives. The Freakanomics podcast got me to thinking about doing away with tipping in the U.S. The discussion has heated up in the past few months with several prominent restaurant owners doing away with tipping in their own establishments. The practice seems to have met with mixed results, and people have very strong opinions about it.

The further into the topic I delved, the more I realized that this question does not have an easy answer. I started off liking the idea of eliminating tipping, but after speaking with those who work in the restaurant industry, I am not so sure that this would be in the best interest of everyone.

The Connection Between Tipping and Service

In the episode of the Freakanomics podcast that covers tipping, host Stephen J. Dubner talks to Michael Lynn, a professor at the Cornell Hotel School. Lynn has done extensive research on the practice of tipping. His research has found that the level of service only has a tiny effect on the tip the customer gives. This, of course, raises the question of whether or not tipping is an effective means of motivating servers and increasing their wages. Lynn explains, “Even though the actual relationship between tips and service is low, servers think there’s a relationship, and that’s enough to motivate them to deliver good service.”

The people I spoke with in the restaurant industry seem to confirm that tipping is still a good motivator. Chris Rickabaugh, a Los Angeles area server, explains, “It seems to me that the main reason to work as a server is the promise of the tip. It's a culture we've built here in the U.S. In a way, the tip is part of a contract. Good service equals a good tip. Bad service almost guarantees a bad tip if any tip at all. Why would this be better than a wage bump?”

I do not agree with the argument that servers would do a worse job if there were no tips. Plenty of us work in jobs where we do not receive tips, and we still manage to give good customer service or interact with clients in a courteous and efficient manner. I do not think servers are any different; most would still manage to give good service. That being said, there is clearly value in tips being a motivator in that tips give servers some control over their own wages.

Summer Stearns, Managing Partner at Diablo Taco says, “Overall I think tipping and service charge equal accountability. They drive passion in the industry.” This backs up what Rickabaugh says about the promise of a tip being the main reason to work as a server. It is firmly part of the restaurant culture in the U.S., and it adds value to the relationship between customer and server. Stearns adds, “Tipping is a way for restaurant owners to have our customers hold employees accountable for the their performance. The better you are as a server, the more money you make.”

Tipping & Wages

One of the arguments restaurant owners have made in favor of changing the current system is a more equal distribution of wages between servers and kitchen staff. Line cook positions can be hard to fill. The pay is often low, and there are often more openings than there are qualified candidates. A quick search of job openings in many major cities will reveal an abundance of line cook positions, and when I was hiring for such jobs, managers would often complain, “Why can’t you send me any qualified cooks?”

One possible solution to this problem is doing away with tipping and either adding a service charge to the bill or building the cost into menu prices and using that money to increase wages for everyone in the restaurant. Legally, management cannot take any of a server’s tips, so eliminating tipping and instead having customers pay what they normally would as a tip under a service charge or increased menu prices would allow management to have control over that money. In effect, restaurant employees who are not servers could see an increase in wages as management is able to redistribute the money.

This may sound great in theory, but such an approach is not without its problems. For one thing, margins are already so small in the restaurant industry that shifting the money around may mean that servers take home less pay at the end of the day. Also, there may be an effect on the relationship between customer and server.

“Currently the process of tipping is a transaction between guest and server. If tips are to be eliminated and converted into a service fee that is factored into the cost of a meal, we now have a transaction between guest, restaurant owner/management and server. In my mind this is a slippery slope,” explains Los Angeles area server Bryan Graham.

This raises an interesting point about tipping: there is a direct exchange that happens between the server and customer. In a way, it gives servers some control over their wages. If the revenue from tipping shifts over to a service charge or increased food prices, the server is at the mercy of what wage management wants to pay. If they work for a generous restaurant owner, they might notice no changes in their take-home pay; however, an owner with an eye toward shrinking margins may lower pay.

Graham also said, “Money that once went straight into a server’s pocket is now funneled through a business that has its own agenda and bottom line. Servers have lost control of their primary revenue stream. Servers would be allowing someone to collect their money and redistribute it however they saw fit.”

Service Charge as a Replacement for Tipping

Legally, management cannot touch tips, but adding a service charge to the bill takes control of that money out of the hands of servers. The problem is that it is ingrained in us as customers that the tip, as Graham points out, is a transaction between us and the server.

“Adding a service charge to the menu in theory sounds good. Most of these models have added the 18-20% to the final bill, but the server rarely sees all of this, whereas in the current model he/she does, not counting ‘tip out’ at the end of the night,” explains Richard Briggs, a Los Angeles area server and bartender who has worked in a variety of restaurants.

The bigger issue here is that simply doing away with tips and tacking on a service charge does not always work. If the result of the system is a reduction in wages for a big part of the staff, the effect on morale may not make such a switch worth it.

As the minimum wage is increasing throughout the country, restaurant owners may have to rethink how they pay their employees. Businesses in Los Angeles will see a series of hikes over the next few years that will lead to a minimum wage of $15/hour in 2020. In order to cover wages for everyone from kitchen staff to service staff, the answer may be in redistributing wages through replacing the current tipping model with a service charge. The challenge is finding a way to do that without negatively affecting wages.

“Having experience with a restaurant that tried this to help them with the minimum wage raise in the late 90s I've seen it go horribly wrong. They added 18% to the bill with 15% going to servers and 3% was a ‘house charge.’ We servers still had to tip out the bus staff and bar staff with their 15%, so take home tips were closer to 9% some evenings. This restaurant lost a lot of good help ‘experimenting’ with this,” Briggs says.

Minimum wage increases are important. As the economy has picked up and unemployment has dropped, many of the jobs that are coming back are in the service industry—an area where wages can often be low. Tips become important in that they help supplement someone’s income, so they can afford to live in the area where they work. It would be great if margins in restaurants were big enough that pay could be increased for those who do not benefit from tips (e.g. kitchen staff) without affecting the take-home pay of front-of-the-house staff, but that may be a challenge.

Some Final Thoughts on Tipping

In the end, the decision to do away with tipping in the U.S. is not that clear cut. It largely depends on the type of restaurant and determining how it will affect servers and the restaurant as a whole. While I see advantages to a service charge and giving managers the control to redistribute wages to non-tipped staff in order to meet the demands of an increasing minimum wage, such a system could fail if it means lowered wages for some. Taking away wages from some employees to give them to others only works to build tension and animosity between different employees.

When I started doing the work to write this article, I leaned toward the idea of doing away with tipping and simply having the amount usually reserved for tipping go toward a service charge or increased menu prices, but, after hearing from those in the industry, I now see the value of our current system. I like the idea of tipping being a transaction between customer and server. This is especially important as more and more people rely on wages from tips at service jobs to make ends meet. Given how big the restaurant industry is and how many American workers rely on wages from service jobs, it is important that we remember this type of work in conversations about tipping, pay and a living wage.

Special thanks to Richard Briggs for interviewing the servers quoted in this article.