How Tip Free Restaurants Work and Why This Trend is Making Waves

How Tip Free Restaurants Work and Why This Trend is Making Waves
Will Harmon

By Will Harmon

The idea of the “tipless” restaurant has been spreading over the last 5 years, and has gained steam recently. The move towards gratuity-free restaurants began in California’s Bay Area, in several popular restaurants in San Francisco, Berkeley, and Oakland.

What drives the switch from a traditional staff-compensation model to a tipless one? Internally, it’s an attempt to close the gap between front- and back-of-house wage disparity. Externally, there are countless forces driving this change in convention. The best way to explain it is to go back to the beginning—right back to the Bay Area.

The Bay Area is an employment metropolis, as well as home to a powerful combination of high minimum wage and high rent costs. The Washington Post recently measured the minimum wage needed to afford a two-bedroom apartment in each state. They ranked California as the third-most expensive state with a required minimum wage of $30.92. If you apply the same study to only to San Francisco, calculations reveal that the minimum wage required to afford a two-bedroom apartment skyrockets to $58.04!

Now, compare that study with the reality that restaurant employees face: 2017’s minimum wage rates across the Bay Area sit at $11–$13, which towers over the American national minimum rate of $7.25.

Even though a single employee is less likely to rent a two-bedroom apartment (as per the study), the Bay Area’s gigantic cost of living certainly makes apartment affordability a challenge. This is all made more daunting since, as restaurant staff knows well, tips are everything.

With most occupations, employees can budget expenses based on a fixed salary—paychecks are predictable. Restaurant staff can estimate their average take-home pay, but that number varies greatly based on the generosity of patrons. For that reason, increased minimum wage rates and tip free restaurants offer owners and managers the opportunity to provide staff a consistent income suitable to the cost of living.

The catch: restaurant budgets are static. If more money is going to the employee payroll, there needs to be compensation elsewhere. Enter: the menu.

tip-jar-with-money

How Restaurants Are Making It Work

To adapt to the increase of cash flow to employees, restaurant owners increase menu price points. This change is seen as progressive, civilized, and, “the way of the future.” What you see is what you pay.

How to break it to the customer? Camino, a restaurant in Oakland, California, takes a transparent, bold approach. The menu simply states,

“No more tips. Our prices now include service so we can pay all our employees a living wage.”

At the end of the day, it’s about restaurants promoting a more sustainable lifestyle for their staff. If your employees can’t afford to work for you, you’ll have colossal turnover rates and a workforce that’s spread way too thin.

Restaurants are experimenting with different methods for eliminating gratuities. Aside from menu pricing, some are adding surcharges to each meal based on per-person and per-meal criteria. While upscale establishments with high price points and surcharges are finding more success with the model, casual restaurants are reverting back to tips, reporting that “it was just too difficult to succeed on that scale.”

The Challenges For Tip Free Restaurants

The introduction of tip free dining will draw various reactions from your customers. After all, North America’s tipping culture is a habit that’s difficult to break. For those times when diners can’t resist leaving behind a token of thanks, some restaurants report that employees pool cash tips for staff events or to help a colleague out in an emergency.

The early adopters of grat-free service are pioneering methods for eliminating tips in the future, and ultimately, eliminating the disparity between front and back of house pay. The result will be fair wages for a restaurant’s entire staff in addition to job security and perks like healthcare benefits.

Joe’s Crab Shack, a major national restaurant chain, began testing a tip-free model in 2015, but called it quits in early 2016. Chain-wide, they learned that customers simply like to reward good service, and that increased menu prices didn’t contribute to positive experiences.

If anything is certain, it’s that the restaurant industry is paying close attention to changes in gratuity culture. With minimum wage rates in the Bay Area expected to spike to $15 by January 2019, more developments on tip free restaurants are soon to come.

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Will Harmon
Will Harmon

Will Harmon is an associate at BlueCart, an ordering, inventory, and operations platform for the hospitality industry. He loves learning about procurement practices and the latest restaurant trends.