Is Tipping A Broken Business Model

WestCoastRunner · May 11, 2014

A restauranteur is opening a restaurant on Vancouver Island in June and is doing away with tips. This will be the first restaurant to use this business model. Instead of tips, he will be raising wages for servers and cooks between $16 and $24, provide benefits. He will raise menu prices by 18% to cover this cost.

I was listening to a program on CBC radio a few weeks back and a restaurant owner said that if she did this, she would go out of business. Servers also may not like giving up upwards of a few hundred dollars in tips on any busy evening.

However, this business model makes sense to me. If someone is eating at a restaurant, and they reward their servers with 15% to 20% tip, they can afford the 18% increase in menu items. It also provides more financial security for staff with most likely less turnover. And for those stingy patrons who refuse to tip, this will take care of that problem.

Some say that this guy is ahead of his time. Let's hope this model works for many reasons.

Bryan · May 11, 2014

They are only going to attract lousy servers who don't make decent tips for a reason. Good servers make a lot more than that at a busy restaurant.

TimG · May 11, 2014

The annoying thing about tipping is inflation over and about the inflation that is already in the food price.

i.e. 10% used to be the expected tip - now it is 15%. 20 years from now it will 20%-25%.

WestCoastRunner · May 11, 2014

They are only going to attract lousy servers who don't make decent tips for a reason. Good servers make a lot more than that at a busy restaurant.

This particular restaurant is in Parksville so I would imagine they will hire talented locals who want security and want to stay and live in the area. Parksville is a small town. I can see in large urban cities like Vancouver where good servers can make more. This model may not be appropriate for all situations.

WestCoastRunner · May 11, 2014

The annoying thing about tipping is inflation over and about the inflation that is already in the food price.

i.e. 10% used to be the expected tip - now it is 15%. 20 years from now it will 20%-25%.

Tips are now 15 to 20%.

TimG · May 11, 2014

Tips are now 15 to 20%.

I give 10%-12%. Food prices rise with inflation and there is absolutely no justification for inflating tips on top of that.

Bryan · May 11, 2014

Tips are now 15 to 20%.

No. Servers WISH people were dumb enough to pay that. You might get 20% or more on a small bill just because people will round up. For a large table, with a bill of several hundred dollars, even 10% is pushing it.

Besides, why should the percentage be increasing? The prices on the menus keep increasing, that means the same percentage is always an increasing amount of money.

WestCoastRunner · May 11, 2014

No. Servers WISH people were dumb enough to pay that. You might get 20% or more on a small bill just because people will round up. For a large table, with a bill of several hundred dollars, even 10% is pushing it.

Besides, why should the percentage be increasing? The prices on the menus keep increasing, that means the same percentage is always an increasing amount of money.

Many debit machines at restaurants are now programmed to accept 15 or 20% tips. 10% is no longer offered on these machines. I tip 15% always. Remember, the tips are going to the servers who are making minimum wage.

TimG · May 11, 2014

Many debit machines at restaurants are now programmed to accept 15 or 20% tips.

So? People can enter in any dollar amount they want.

I tip 15% always. Remember, the tips are going to the servers who are making minimum wage.

Do they? The trouble is we have no idea who really gets the tips because the tip sharing policy varies from place to place. The only real argument in favour of leaving some tip is the tax reporting agencies generally assume that serving staff make 8% on gross receipts. 8% is a lot less than 15%. Edited May 11, 2014 by TimG

Bryan · May 11, 2014

Many debit machines at restaurants are now programmed to accept 15 or 20% tips. 10% is no longer offered on these machines. I tip 15% always. Remember, the tips are going to the servers who are making minimum wage.

You can always input an actual dollar amount, or decline to tip altogether. Remember, the tips are going to servers who are already making that 10-15-20% off of every table, and it adds up to a LOT of money if they are any good at their jobs. There is no reason to be unusually generous with someone who has more cash in their pockets than most of their customers do.

GostHacked · May 11, 2014

However, this business model makes sense to me. If someone is eating at a restaurant, and they reward their servers with 15% to 20% tip, they can afford the 18% increase in menu items. It also provides more financial security for staff with most likely less turnover. And for those stingy patrons who refuse to tip, this will take care of that problem.

I'll tip if the service is good. Force me to pay a tip, and I'll find another place to eat.

Overall the idea is not a bad one. If you can tip that much then you are paying the same. It's just now the restaurant can actually provide some proper benefits and wages to it's employees. Not a bad idea. But I think this would only work on the classier places to eat.

The trouble is we have no idea who really gets the tips because the tip sharing policy varies from place to place.

Good point.

cybercoma · May 11, 2014

They are only going to attract lousy servers who don't make decent tips for a reason. Good servers make a lot more than that at a busy restaurant.

Typical, right-wing nonsense: "You can't raise wages! It will make people lazy! We keep the wages down so they're productive!"

Let's apply that thinking to corporate executives next.

cybercoma · May 11, 2014

No. Servers WISH people were dumb enough to pay that. You might get 20% or more on a small bill just because people will round up. For a large table, with a bill of several hundred dollars, even 10% is pushing it.

Seriously? A large table with a bill of several hundred dollars is going to take up a lot more time and attention from the server. After spending at least a couple hours with you, you're going to stiff them on the tip? Tipping etiquette across Canada is 15%, regardless of the size of the party or the amount of the bill. In the United States it's 20%. If you can afford several hundred dollars for dinner, you can afford the tip.

cybercoma · May 11, 2014

Furthermore, Bryan, some wait staff are required to pay out to the kitchen. Do you know what that means? Regardless the tip they receive, they're required to pay as much as 7% of the bill to the kitchen in some restaurants, since it's expected that customers will pay the customary 15%. Your 10% tip? You just gave the waiter/waitress 3% of your bill.

Edited May 11, 2014 by cybercoma

TimG · May 11, 2014

Typical, right-wing nonsense: "You can't raise wages! It will make people lazy! We keep the wages down so they're productive!"

A complete misrepresentation. All wages need to be connected to performance. The tipping culture provides immediate feedback on performance that is likely more efficient than whatever mechanism employers would have to devise to monitor performance in the absence of tips.

TimG · May 11, 2014

Regardless the tip they receive, they're required to pay as much as 7% of the bill to the kitchen in some restaurants, since it's expected that customers will pay the customary 15%.

Businesses that do this are exploiting their workers and don't deserve my business.

cybercoma · May 11, 2014

A complete misrepresentation. All wages need to be connected to performance. The tipping culture provides immediate feedback on performance that is likely more efficient than whatever mechanism employers would have to devise to monitor performance in the absence of tips.

Research that I've read suggests otherwise. Tips are not an accurate measure of server performance.

TimG · May 11, 2014

Research that I've read suggests otherwise. Tips are not an accurate measure of server performance.

Perhaps, but it does not change my argument that all wages need to be connected to performance. If tips are not used then some other evaluation mechanism is required.

cybercoma · May 11, 2014

Businesses that do this are exploiting their workers and don't deserve my business.

You better stop going to restaurants then because just about every one of them does this. Waiters and waitresses, bartenders, they all usually have to pay out to the kitchen and bus staff. Usually it's between 4-7%.

TimG · May 11, 2014

Waiters and waitresses, bartenders, they all usually have to pay out to the kitchen and bus staff. Usually it's between 4-7%.

When I worked as a waiter it was a percentage of the tips made - not some percentage of a hypothetical tip that may or may not have been made. Any restaurant that reduces server wages for not meeting some arbitrary tip target is exploiting their workers. Edited May 11, 2014 by TimG

Bryan · May 11, 2014

Seriously? A large table with a bill of several hundred dollars is going to take up a lot more time and attention from the server. After spending at least a couple hours with you, you're going to stiff them on the tip? Tipping etiquette across Canada is 15%, regardless of the size of the party or the amount of the bill. In the United States it's 20%. If you can afford several hundred dollars for dinner, you can afford the tip.

A slightly smaller percentage of a much larger bill is still more money. Any server who considers that "getting stiffed" doesn't deserve anything.

Servers WISH tipping etiquette in Canada was 15%. Most consumers are not that dumb. They know 10-12% is VERY generous. If anything, there is a growing trend towards not tipping anymore. A lot of people are realizing that they don't get tips at their work, and the server is often taking home more than they are.

Furthermore, Bryan, some wait staff are required to pay out to the kitchen. Do you know what that means? Regardless the tip they receive, they're required to pay as much as 7% of the bill to the kitchen in some restaurants, since it's expected that customers will pay the customary 15%. Your 10% tip? You just gave the waiter/waitress 3% of your bill.

That is illegal.

Bryan · May 11, 2014

Typical, right-wing nonsense: "You can't raise wages! It will make people lazy! We keep the wages down so they're productive!"

Let's apply that thinking to corporate executives next.

You can absolutely go ahead and do it, you're only going to hurt your own business. What that restaurant is offering would be a wage cut from what good servers are making under the normal system. That is why the restaurant will only attract bad servers -- they are the ones for whom the guarantee is attractive.