Restaurants say No to Tips, Yes to Higher Prices

Prompted by a spurt of new minimum wage proposals in major cities, an expanding number of restaurateurs are experimenting with no tipping policies as a way to manage rising labor costs.

On October 15, 2015, Danny Meyer, renowned restaurateur and CEO of the Union Square Hospitality Group, announced that starting in late November, there will no longer be a tip line on patrons' checks and no need to leave additional cash at the table, coat check or bar. The new policy will kick start at The Modern Restaurant and will be instituted at the group's remaining New York eateries next year.

In Seattle, a fundamental inequity was found in restaurants where people who worked in the kitchen were paid about half as much as the people who worked with customers in front of the house. In San Francisco, menu prices at two restaurants include tips and taxes. An upscale restaurant in Manhattan tacks on a 20 percent administrative fee.

In some cities like New York, where tipping is subject to a welter of federal, state and local regulations and tax laws, eliminating it would simplify bookkeeping. Managers predict that it would allow them to better calibrate wages to reward employees based on the length of their service and the complexity of their jobs.

Although mandatory service charges are common around the world, restaurant tipping is deeply ingrained in the American psyche. There is a worry that potential diners will see significantly higher prices without realizing that they include gratuities. Restaurateurs also worry their best servers will leave as a result.

With further mandated wage increases scheduled, a hybrid model is coming into focus. This model includes guests being charged a mandatory 10 percent service charge and then encouraged to add a 5 percent to 10 percent gratuity. This means that restaurant owners are faced with giving servers a $2.50-an hour raise when they are already pulling in about $25 an hour in tips.

Since this new policy has gone into place, wages have risen between $3 and $12 an hour, with the lowest paid worker earning $15 an hour. Everyone, including part-timers, has health insurance and a 401(k) retirement plan.

While menus still state that the price includes service, the credit card slips now have a line that reads: "If you INSIST on leaving a tip, write it here."