Gather a group of restaurateurs in a room, and it won’t take long for the topic of gratuities to ignite conversation. Managing tips has become a challenging preoccupation in most restaurants as operators strive to improve equity and provide a consistent service experience. The subject has grabbed media attention, too, which raises industry-wide discussion about how to deal with the challenges and embrace the evolution of service in Canadian restaurants.
Although its origins can be traced back to early British public houses, most European countries have replaced tipping with designated service charges as is the norm in other parts of the world, including Australia and Asia. There has also been a movement toward designated service charges in other areas of hospitality, including cruise ships, private clubs and resorts. There are even designated service charges in restaurants such as Thomas Keller’s Per Se in New York and his French Laundry in California. Nonetheless, the North American restaurant industry at large remains committed to tipping. This is due, at least in part, to a fear of consumer resistance to change. Our ongoing research at the University of Guelph is offering insight into determining whether this is the most logical path and, if not, how to manage today’s tipping conundrum.
A Tipping Overview
Tipping never used to create such controversy. In fact, 20 years ago, the server almost always kept the customer’s full tip. There may have been some establishments that required the server to ‘tip out’ to the bartender, and, in some cases, servers may have even thrown a couple bucks to a hostess, busboy or other support worker, but tipping has since evolved. The value proposition and the contributions of staff have also changed, as more and more restaurant employees add value to the experience.
The biggest change in tipping in the last decade has been the practice of servers ‘tipping out’ a percentage of sales at the end of a shift. The money is redistributed amongst support staff by either management or an employee appointed by the team. The practice of management ‘possessing’ tipped monies is not recommended due to tax implications; and tips included in tip-sharing pools are explicitly labelled “controlled tips” by the Canada Revenue Agency and are to be reported. In the early days of this evolution it was front-of-house staff who received the dividends of this practice. Increasingly, in recent years, the back-of-house and management have begun to receive a share as well. The practice makes sense to most industry workers but has been publically controversial. Case-in-point, American chef Mario Batali was recently sued successfully by an ex-employee; the media coverage was international. And, in Ontario, the recent introduction of a private members bill, which would ban managers and owners from taking part of a server’s tip, is gaining attention.
According to the CRFA, foodservice sales (excluding QSR) in Canada were approximately $40 billion, which translates to approximately $6 billion in tips, based on a 15 per cent tip rate. So, it would be helpful to determine more about how the model is working.
What Determines a Tip?
Let’s look at the research. It shows men tip higher than women, attractive female servers receive better tips than those considered not as attractive, large parties tip less than smaller ones, customers who pay with credit leave more than those who pay with cash and some research suggests there may be ethnic and racial differences in tipping behaviour. Our interviews with servers revealed this information is common knowledge and affects the quality of service individual guests receive in a restaurant. There’s a more significant relationship between a server’s expectation of a tip and quality of service than there is between quality of service and size of the tip. The question of whether customers tip based on service quality has also been examined. For the most part, these studies show a minimal link between service quality and tipping behaviour. It turns out tipping is often pre-determined by the bill’s total and a customer’s past tipping behaviour. This behaviour materialized as tipping became accepted as a social norm. In other words, we tip because we should, and the size of the tip is not significantly impacted by our experience.
The Pros and Cons of Tipping
In the last year we interviewed more than 50 restaurant owners and managers across the country who lead establishments where tipping is a common practice. The results of this recently submitted work show key factors operators should consider. For example, there was a consensus amongst the operators that tipping improved quality of service, though many conceded it may just prevent poor service. Operators also felt tipping provided labour-cost relief since tipped alcohol servers make less than other employees. This thinking doesn’t take into account the service revenue that could be generated by replacing tipping with designated service charges. Operators also observed that, in some cases, revenue increased by motivating servers to sell more, likely increasing the size of the bill and tip.
In contrast, the biggest problem identified with the tipping system is wage inequality. The server is integral to a restaurant, but one would be hard-pressed to justify a server’s compensation being two, three, even four times more than say a line cook, let alone a manager. Having servers tip out is a by-product of this inequity, an effort to re-distribute monies more equitably. Some restaurateurs are asking servers to share up to six per cent of their sales with other employees. Good intentions aside, this practice has consequences. First, the process creates a second compensatory system. Beyond payroll, this second tip-sharing system has to be administered, and our research pinpoints economic and transparency issues associated with the practice.
Other relationship problems are often created by the use of a discretionary tipping system. Animosity between back-of-house staff and front-of-house staff is legendary in the restaurant business. In his book Kitchens, The Culture of Restaurant Work, Gary Allan Fine wrote: “Cooks earn tips, they just don’t receive them.” Our findings have also shown tipping can strain relationships between competing servers and is often identified by management as a tool to punish and reward servers. Operators were consistent in telling us restaurants have better tip sections and better tip shifts. In short, the tipping system that’s intended to improve server performance doesn’t ensure a company’s long-term success — instead it ensures a short-term personal reward for the employee. So, are we putting the server’s financial standing at the centre of our business model? Is it in a restaurateur’s best interest for a server to satisfy a table of business people while the family dining one table over is neglected?
The Solution
So what’s the answer? Every establishment is unique; with different menus, pricing structures, service delivery systems, et cetera. So, it makes sense to allow individual operations to manage tip revenue based on their business situation. When asked the bigger question as to whether employing a tipping system makes business sense or not, the research shows there are several potentially serious consequences. Does it make sense to have a significant part of employee income determined by someone other than the business owner and, if so, how should it be managed?
You could take it a step further and ask if there’s a reason we’ve relied on tipping for so long. Does tipping play a role in our continued fight to attract and retain top talent? Has tipping played a role in what many consider the ‘ghettoization’ of our kitchens? Such questions are worthy of discussion. In such a fragmented industry it’s difficult to unite diverse players, even when they share a common interest. The research shows consumers like the perceived power tipping gives them, and they’re hesitant to let it go. Ultimately, business answers to the needs and wants of the consumer, so perhaps tipping is another instance of that.
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