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What is the No-Tipping Movement?

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August 15, 2022

As a restaurant owner, you probably have your finger on the pulse of the newest business trend—the no-tipping movement. While gratuity-free establishments started in 2015, the trend has been picking up speed over the past few years. 

Wondering if this model might fit your business? Read on for more insight.

Why Are Some Restaurants Going Gratuity-Free?

As establishments open up and staff returns to work, some restaurant owners have been thinking about ways to support their crews and better contribute to their financial stability. 

While tips seem like a server’s bread-and-butter, they can still be inconsistent. Here is where the no-tipping trend has taken hold. In place of gratuity, owners apply a service charge to all guest bills. The income from that charge is then used to pay all employees higher hourly wages. Ultimately this model’s goal is to guarantee more predictable and livable wages.

Industry Spotlight: Sugarpine Drive-In

Owners Emily Cafazzo and Ryan Domingo of Sugarpine Drive-In, a drive-in restaurant offering seasonal menus in Troutdale, Oregon, announced on their Instagram that the business was moving towards eliminating tipping and adding a 20 percent service charge to every bill. 

As they say, there were a number of factors for the decision. “To give you the best experience possible, we need to continue employing lots of great people. We pay our team as much as we can while offering health benefits and keeping our prices in an acceptable range.”

On top of maintaining a great customer and employee experience, this model also allows them to recruit competitively in a sector of hospitality that historically pays less than living wages. “We want to create a sustainable working environment within the fast casual/quick service dining and that means eliminating gratuities as a variable in employee compensation.”

Is a Service Charge a Tip at a Restaurant?

From a customer perspective, a service charge could look like just another auto gratuity. However, a service charge does not function in the same way.

A tip is money specifically allocated to your service team.

A tip is money specifically allocated to your service team and not considered part of payroll wages. In contrast, a service charge is money that goes to the restaurant, allowing owners to spread the extra income to the employees through wages.

A service charge is money that goes to the restaurant.

Should Restaurants Eliminate Tipping and Raise Staff Wages Instead?

While establishments like Sugarpine embrace the no-tip trend, does that mean it’s a solution for every restaurant? Like any significant business change, deciding to omit the tip comes with both pros and cons.

  • Customer Opinions Vary: Tipping culture in the U.S. is second nature, so some consumers might find the switch confusing. Plus, patrons are accustomed to tipping based on merit, so requiring them to pay a predetermined percentage might feel uncomfortable. On the other hand, a set fee takes the guesswork out of calculating gratuity. In a recent New York Times article, consumers spoke about feeling pressure to tip as much as 35 percent, so having a flat fee could ease some customers’ worries.
  • Impacts Financial Situations: Restaurants that have successfully implemented service charges have been able to pay front and back-of-house staff higher hourly wages, health care, and other benefits. Guaranteed income is a great way to keep staff on board, which is especially crucial during labor shortages. However, a bump in taxable wages might not be financially feasible for every restaurant because higher payrolls can also mean higher payroll tax costs.

If you are considering nixing gratuity and adding a service charge, crunch all your numbers to ensure you make a sound financial decision. Don’t forget to check and see if your state will soon have higher minimum wage requirements. If so, implementing a service charge now might help you stay ahead of upcoming labor increases. 

Also, give your customers a head’s up about your policy change and let them know your reasons why. A social media blast, like Sugarpine’s Instagram post, is an easy way to get the word out. You can also make a note on your website and menus.

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