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

By Amy Nichol Smith, writer
Sep 13, 2017
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> Human Resources

A service charge can help balance costs

In the United States, it is customary to offer a tip of 10 to 30 percent for good service after being served a cup of coffee 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 a surge and decline over the years, though.

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.

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, drawing a smiling face and writing "thank you" on the bill, they can earn a higher tip.

A tip could be as high as 30, 40 or 50 percent 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 percent, 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 percent less.

Tipping can cause competition among servers, but 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.

Downside of not tipping

Customers want to reward good service, if only to satiate their egos. If you figure in 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 percent, so you're going to have to do some creative budgeting – even with the service charge – to maintain a high gross profit percentage.


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Amy Nichol Smith
Amy Nichol Smith
See Amy Nichol Smith's Profile
Amy Nichol Smith is a freelance writer who covers business, technology, food, sports, pop culture, and much more. She's a former features reporter and editor for The Monitor newspaper and has a love of football and video games.
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