Restaurants start to rethink the economics of tipping

On a busy Friday night in New York's East Village, the friendly and efficient servers at Dirt Candy took home zero dollars in tips, but they considered it a good night. When you're a server on salary - rather than relying on often-mercurial guests for your financial livelihood - every night is a good night.

The vegetarian restaurant is one of a handful of eateries across the country that are experimenting with a new model of compensating employees, with varying results. When Dirt Candy reopened in a larger space last month, chef-owner Amanda Cohen announced she was eliminating the line to write in a tip on her checks. Instead, a 20 percent "administrative fee" is tacked onto every bill and goes toward employee salaries, for both servers and cooks. The starting salary at Dirt Candy is $15 an hour, nearly twice the minimum wage in New York ($8.75), and three times the minimum wage for food service employees ($5) who get tips.

"Everybody works for me," said Cohen. "I should be the one to pay them."

It sounds so simple. But for her, the attempt to change tipping culture isn't just an economic issue; it's also an emotional one.

"The idea that if you get bad service, you get to punish the server - that's awful," said Cohen. "All the negative comments have been, 'But what if the service is bad?' And my response is: 'Then complain, say something to the manager, let the restaurant take care of it.' Not, 'I'm going to decide how much I'm going to pay you for your job.' Nobody works that way except servers."

As international travelers know, you don't tip servers in many other countries around the world, where they're more likely to be paid a living wage. That has led some U.S. restaurateurs to adopt the practices of their home countries: Because servers in Japan do not accept tips, Riki, an izakaya tucked away near Grand Central Station in New York, has signs posted at each tatami table that say: "Riki Restaurant is now a non-tipping establishment. Tipping is not required nor expected."

In the United States, tipping wasn't prevalent until after the Civil War, and even then it was considered a vestige of Old Europe and wasn't widely embraced. Back then, a few coins were all it took, and they were given at the beginning of the meal. An old story attributes the word "tip" to an acronym in British coffeehouses, where coin bowls had signs that said "To Insure Promptitude."

The average tip has increased over the decades, which is why you might find yourself sneaking an extra $10 onto the table after your 85-year-old uncle treats you to dinner and stiffs the server. The 10 percent tip that was the average in the 1940s has increased to a standard 20 percent.

But if tips are to reward good service, shouldn't we tip at the beginning of the meal? When you tip at the end, and you know you'll never see that waiter again, why do it at all?

Tipping boils down to guilt, says Michael Lynn, a professor of consumer behavior and marketing at Cornell University's School of Hotel Administration. "I personally believe that most people tip because of social expectations, and they want to avoid the disapproval that comes from violating that - which means they're giving up money not to get anything, but to avoid a negative outcome," said Lynn. "That suggests to me that overall, they would be better off if they didn't have to tip at all."

Guests might think their tip reflects the service, but Lynn's studies have found that most diners tip the same percentage, whether it's 15 or 25 percent, every time they eat out. Therefore, studies have found, the best way a server can guarantee a night of good tips isn't to provide the most personalized, meticulous service to a small number of tables and hope for a big tip from each; it's to turn as many tables as possible, even if it leads to slightly worse service for everyone.

That strategy "makes you less of a team player and more cutthroat," said Nathan Wilkinson, who tends bar at McCormick and Schmick's in Arlington, Va. "You want to bring in as much business for yourself, even to the point where you can't handle it all. People go away feeling like they got bad service because you tried to take on too much."

Some industry veterans object to the very idea of a customer-dependent salary. Server performance, they believe, should be evaluated and rewarded solely by the restaurant's management, rather than making every table into a mini HR department.

When you stiff waiters for bad service, you might be penalizing them for something that's not their fault, such as a backed-up kitchen. And you might be stiffing the rest of the staff, too: Many restaurants pool tips, and servers give a share of their tips to busboys and bartenders, and sometimes even the dishwasher and hosts. At corporate restaurants that electronically track and report tips for tax purposes, employees may be taxed on the full amount of the night's tips, even though they have to distribute a portion of them to other staff members. Some restaurants also take credit card transaction fees out of their employees' tips.

Working at a restaurant with set wages, said Wilkinson, would eliminate uncertainty. And even though he could potentially make less money, he said it's a system he would be willing to adopt right away.

"It's like always betting on the winning horse," he said. The way it is is now, "there might be nights where I do really well, but for the most part, I fall below $100 a night."

If a restaurant eliminated tipping and paid good wages, he said, "It would make people feel good about eating there."

Sometime this spring, Bill Perry will quit his job as a librarian for a nonprofit organization to open the Public Option, a neighborhood restaurant and brewpub coming to Washington this summer. He will start servers' salaries at $15 an hour - more than the city's $9.50 minimum wage and five times its tipped minimum wage (what servers can be paid if their pay-plus-tips meets or exceeds the standard minimum wage) of $2.77. Tips will be strongly discouraged. Any money left behind by guests will be donated to a charity of the staff's choosing.

"The idea is to get away from shifting compensation to the consumer," said Perry. "What I'm hoping to do with tipping, and more broadly with this whole experiment, is to participate - in a very small way, of course - in the evolution of the market economy."

Rather than tack a service charge or administrative fee onto the bill, Perry said, he will price his drinks and dishes about 15 to 20 percent higher but will still keep them in the range of similar restaurants in the area. Diners "probably won't save much, but they certainly won't pay any more," he says.

According to Lynn's research, that's not necessarily how the public will see it. "Basically, consumers judge restaurant expensiveness on menu prices and don't take into account tips or service charges," said Lynn, "So if you eliminate tipping and replace it with service-inclusive menu pricing, you're going to be perceived as more expensive."

That's not a problem at places that don't shy away from an exclusive reputation, such as Per Se in New York and Alinea in Chicago. But in Philadelphia, when restaurant Girard opened with service- inclusive pricing, making dishes 15 percent more expensive in the process, it was pummeled by Philadelphia Inquirer critic Craig LaBan for its high prices and ambiguous tip policy. "I believe Philadelphians would pay higher menu prices instead of tipping if the extra cost was transparent," he wrote.

At Dirt Candy, Cohen opted not to build the price of service into her food because she worried guests would be turned off.

"You're going to walk by and look at my menu and be like: 'The portobello mousse is $18. That's way too expensive for an appetizer,'" said Cohen, "and I can't run out and explain to everybody: 'No! Don't worry, there's no tipping!' "

Cohen's perspective was shaped by years working as a cook. In her first job, she said, she made $8 an hour. She would finish a long shift and watch servers who had worked fewer hours rake in $40 an hour on good nights.

"I wanted to figure out a way that I could ... bring up the back of the house's wages without taking away too much from the servers, to make a much more even system," she said.

She consulted with labor attorneys to craft her current system, which uses the term "administrative fee" for legal reasons: Had she called it a "service charge," that money could be distributed only to those along the chain of service, which excludes cooks.

Eventually, though, she plans to eliminate the administrative fee and raise the cost of her dishes, because she says menus should reflect the true price of eating out. One reason the tip system has survived for so long, Cohen said, is that to remain competitive, restaurants must keep prices artificially low - which they can afford only if they farm out their labor costs to consumers.

"It's just a false system, or a lie," she said.

As proposals to increase the minimum wage are considered and adopted around the country, Cohen believes more restaurants will eliminate tipping as they are forced to budget for salaries that may be twice what they've traditionally paid.

"I do think servers should make a fair minimum wage, but with tips included in that, this system seems really broken," she said. "I think everybody will sit down, do their books and say, 'If I just take the money in and redistribute it, that makes a lot more sense.' "

Would a mandatory service charge result in a decline in the quality of service? Lynn said his research shows that, in restaurants with conventional tipping systems, tips don't necessarily motivate waiters to perform better. But when he compared Miami Beach restaurants that have service charges against those with conventional tips, his research indicated that customers perceived the former to have worse service than the latter. That's because merely the notion of a link between tipping and service is enough to influence servers' and customers' perceptions, Lynn says.

Whether perception or reality, this is the sort of effect chef Robert Wiedmaier worried about when he considered abolishing tipping 10 years ago at Marcel's, his fine-dining restaurant in Washington.

"Sometimes it's human nature that if you don't have to work for a tip, maybe you decide you don't work as hard," he said. "You're already getting your money."

Wiedmaier, who abandoned the plan, also knew that not all of his waiters would be eager to try it. While Wiedmaier said his captains make around the tipped minimum wage, the pricey menu and fine wines produce lucrative tips for his waiters, who he said make as much as $100,000 a year. Sometimes they'll benefit from the largesse of big spenders, such as a table that left a $10,000 tip on a $32,000 bill in 2012.

"I was going to pull the trigger and do it, and most of my wait staff was up for it, but at the last minute I decided not to because we just weren't ready at the time," he said.

The move to eliminate tips is small: It encompasses a handful of restaurants across the country and some outspoken advocates such as San Francisco Chronicle restaurant critic Michael Bauer.

Lynn says tipping is too ingrained in restaurant culture to go away. "You could add a service charge, but my guess is that people would start tipping on top of the service charge, and that would create social pressure on others to tip, and eventually you would have regular tipping on top of the service charge," he said.

Cohen, on the other hand, predicts the idea will spread.

"I've had a lot of restaurateurs come up to me and say, 'We're just going to watch what happens with you, and if it works for you, then I think we'll try something similar,' " she said. In the meantime, she has had no complaints from diners in person, and only a few online.

"One of the things that I realized ... was that no matter how much we explained it, people have to see that it's going to work, and talk to my servers," she said. "I'm not forcing anybody to work for me. This isn't a labor camp. People are here because we've explained it to the servers, and they're excited, and they want to be a part of this system."