There is a small but growing trend across the country. A handful of restaurant owners have decided to implement a “new” pay structure for their wait staff. The new structure looks like most jobs – an annual set salary – no more tips. This controversial shift in the way food service workers are paid is causing much discussion in the restaurant industry and among consumers. Is it good for anyone?
Before you think that you’re dealing with greedy business owners, consider this: most countries do not have tipping for wait staff, and in most other countries the wait staff earns a decent living wage. In this country, the wait staff is paid well below minimum wage, expecting the wages to be supplemented by tips.
Let’s look at one case. Bobby Fry is the owner of Bar Marco, a restaurant in Pennsylvania. Bobby decided to begin paying his staff an annual salary and then some. The staff is incentivized by profit sharing instead of tips.
According to Foodandwine.com, instead of minimum wage plus tips, every one of Bar Marco ‘s employees, not only the wait staff, now earns at least $35,000 per year, and gets health insurance benefits, paid vacation days, and profit sharing.
Mr. Fry states that his profits since he made this switch have tripled and that his revenue has increased significantly. He attributes his gains to the fact that his employees are better invested in their jobs. They have learned to be less wasteful with the restaurants resources, and are encouraged to work hard in order to keep people coming back for more.
Mr. Fry strongly believes that customers appreciate the fact that he pays his employees well and gives them an opportunity to share in the success of the restaurant. For Bar Marco, this model is working.
It depends on the restaurant. For example, in order for many restaurants to increase salaries for their staff, prices may need to be raised.
Some places instead may add on a 20% administrative fee that is used to help pay for the increased salaries of the staff.
In the case of Bar Marco, price increases were well received by its clients.
Even though the higher prices on a menu might be the equivalent of what the meal plus tip might be, some diners might not understand that at first, and may be dissuaded from going to that restaurant. A clear message explaining this to customers is essential.
But for other restaurants, a large price increase might not be well received. Without customers coming in to eat, it may be difficult to sustain those higher salaries and there may not be profits to share.
What about the food service staff at high-end restaurants? The wait staff at many fancy restaurants spend years cultivating their craft. They learn about food and wine and are motivated by the knowledge that they will be rewarded by a satisfied customer who tips between 15% and 25%, and punished by an unhappy one. Good wait staff at pricey restaurants can earn as much as $100,000 a year. A high end restaurant may be reluctant or unable to increase salaries to that degree.
Yet other workers may be happy to earn a consistent reliable salary. They would prefer not to be impacted by rainy nights with few customers, cheap tippers, delays in the kitchen that anger patrons, or a table of 8 that orders 6 children’s meals with a coupon.
The food service industry is certainly changing. Only time will tell how the no-tipping trend plays out in the long run for everyone.