Time to Ban Tips? How to Figure Out What's Best for Your Restaurant

By business.com editorial staff,
business.com writer
| Updated
Apr 15, 2020
Image Credit: Rawpixel.com/Shutterstock

Banning tipping is still controversial, but it's gaining in popularity. Is it right for your restaurant?

  • Tips are expected as a way to provide a livable wage to professions such as servers, bartenders, and restaurant support staff.
  • The average restaurant tip ranges from 15% to 20% of your total pretax restaurant bill. Tips are usually shared between servers, bartenders, bussers and hosts.
  • Some restaurants are changing policies to eliminate tipping altogether in their establishments. Instead, a service fee is levied to help pay staff's wages.

In the United States, it is customary to offer a tip of 10% to 30% for good service after being served drinks or a meal. This tradition is also the way most servers earn a livable wage. In many states, the minimum wage for a server is as low as $2.13. Tipping in America has experienced surges and declines over the years.

Some restaurants have introduced a service fee or a fixed tip percentage that's shared across the entire team, including servers, cooks and support staff. It's a controversial method that has pros and cons for your restaurant, customers, and employees.

Average restaurant tip

Tipping in restaurants is expected to help pay the wages of staff members. According to Consumer Reports, the average restaurant tip should be between 15% and 20% of your pretax total bill. The only time it's acceptable to tip below 15% is if service was truly terrible. However, there are no cases where you should skip a tip altogether. For bar service, you should plan to tip $1 to $2 per drink or at least 15% of your total tab.

Who makes tips in restaurants?

Servers are not the only ones receiving your tip money. Many restaurants have different policies on how tips are shared among employees. As an example, a restaurant may ask servers to put 20% of their total tips in a shared pot to distribute between bussers, hosts and bartenders. Restaurants may also use tip pools, meaning all tips for bartenders or servers are put together in a single pot and distributed among staff members.

Benefits of tipping

When customers determine the tip for a server, they feel that they can reward good service with a higher tip and punish poor service with a lower tip. Servers have figured out different ways to ensure a good tip beyond good service. Upselling drinks and desserts drives up total sales for a table, which means a higher tip by numbers alone. If servers create an illusion of intimacy between themselves and the customers, such as by touching a customer on the arm or shoulder, and drawing a smiling face or writing "thank you" on the bill, they can earn a higher tip.

A tip could be as high as 30% to 50% if a server performs exceptionally well, so this can encourage your staff to work hard to treat every guest well. It's a traditional reward system.

Kitchen staff – such as line cooks, bussers and other support staff – often see a percentage of tips as well, if the restaurant employs a tip-out policy. This also encourages cooperation between the front and back of house.

The other side of tipping

Tipping doesn't always shake out equally. You cannot guarantee that every customer will tip at least 20%, and some customers feel it is their right to not tip at all, which leaves a server with lost wages. Tips that are shared with kitchen staff are generally lower than what servers get out of it, but it makes sense when you consider hourly wages – kitchen staff usually gets the federal minimum wage, while servers make 60% to 75% less.

Tipping can cause competition among servers, and not always in a friendly way. Rather than working together to ensure every table's needs are met, servers might focus only on their own tables, regardless of what another server has to deal with.

Benefits of not tipping

If you decide your restaurant will do away with tipping and instead charge a service fee, you can spread the wealth among your servers and kitchen staff. This can promote more cooperation among servers and between the front and back of house. The result is better service overall and happier customers. A service charge is a better option than working the cost into your menu prices, because a customer may experience sticker shock if you raise prices. Be sure to explain the reason for the service charge as well.

If a customer has a bad experience, it is at the manager's discretion to remove the service charge, so customers still feel they're in charge based on the service received.

Downsides of not tipping

Customers want to reward good service, if only to sate their egos. If you figure the extra money into menu prices, customers may not realize that the price of the sandwich includes gratuity and they'll bolt. Psychology plays a big part in why customers want to tip. It's not about how much money they're paying; it's about the perception of what they're paying.

The other obvious downside to adopting a no-tipping policy is that as a restaurateur, you're going to have more overhead. Paying all of your servers minimum wage or more makes it difficult for you to keep labor costs below 20%, so you'll have to do some creative budgeting – even with the service charge – to maintain a high gross profit percentage.

business.com editorial staff
business.com editorial staff
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