Why Restaurants Are Eliminating Tips & Raising Menu Prices In New York City

The wage gap within the hospitality business has always been a deeply mixed bag. But all of that is about to change now that Danny Meyer of the Union Square Hospitality Group has announced that his restaurants will be getting rid of tips in the next year. In order to make up for the difference, menu items will be raised a significant 30 to 35 percent, allowing for a more regulated employee compensation and changing the way we conceptualize gratuity. And while this change will greatly effect the internal functionality of the hospitality business, it will also affect the way we dine. That blank line below the total will no longer stare up at you, simultaneously judging your gratuitous nature and causing you to solve a post-prandial math equation that is never not a hassle.

While Meyer is the leader of the movement, implementing the change at his 13 restaurants beginning in November, various high end restaurants have already adopted the concept of a full-service meal. This idea will force diners to consider the theory of fair pricing and fair wages, something not typically required of the average diner.

Restaurant workers will be pleased at the new forced focus on their work and wages. It's a massive misconception that all kitchen staff are paid equally, appropriately or according to skill. Because diners do not interact with the kitchen during the course of their meal, they look to the server as the face of the culinary expertise and tip accordingly. In the past, the cooks, sous chefs, executive chefs, and line cooks would be paid for their time. Now, with the Danny Meyer experiment, all players in the restaurant will be paid according to merit. A new concept in the kitchen.

Without experiencing the shift first hand as a customer or employee, it's hard to gauge its effectiveness. Thankfully, New York Times food critic and genius of all things restaurant-related, Pete Wells, has exclusively broken it down, making the whole concept easier for us to digest.

Danny Meyer has introduced a massively impactful concept to the hospitality industry. Is it a movement, or is it an experiment?

WELLS: It is an experiment, although Danny Meyer sounds very committed to making it work. They are starting with the Modern so they can work out the kinks and adjust if they have to. They're talking about a nuanced approach to raising prices, so that not everything will go up by the same percentage and some price-sensitive items may stay the same; he gave the example of beer.

Will it last, will it work? Will it be worth it for servers who are used to bringing home the occasional jack pot?

WELLS: That is the million-dollar question. The big unknowns here are the customer reaction and whether the front-of-house staff will be able to adjust to a straight hourly wage. Customers in this country are very attached to their "right" to reward or punish servers, even though there are a number of studies showing that almost everybody tips the same percentage all the time, regardless of their service experience. But there's a legitimate worry that customers will not like giving up the choice of how much to tip. I think there's more danger, though, that servers will look for other jobs if they're not getting paid the way they used to. Danny Meyer said the company is committed to "keeping them whole", meaning their total compensation will be about the same. But what this will mean in practice is servers will get the same hourly wage on a slow Tuesday in January that they'd get on a busy Friday night in December. And a lot of people in the service business are in it for those occasional huge paydays. It may be difficult for them to get used to taking home the same pay week in and week out. They may be less willing to work on weekends — as it is now, they give up the chance to go out with friends because they make so much on those nights.

Who will benefit the most from the change? The kitchen and the office?

WELLS: Some customers will love it. Personally, I suck at math and having to add the tip at the end of a meal always makes me feel stupid, unless it's a very round number. There are certain numbers that I just can't seem to double without taking out a pencil and reverting to third grade. 20 percent of $374? Uh, give me a minute. There should be benefits to the service staff, too. Some probably will like getting off the roller coaster and drawing a steady wage. Danny Meyer also said it will make it easier to promote servers. Right now, if he wants to promote his best waiter to a junior-level management position, he has to give that person a pay cut because managers can't be cut into the tip pool. Needless to say, a lot of talented ambitious people choose the money over the chance for career advancement, and you can't blame them. By eliminating the tip pool, Union Square Hospitality Group can structure wages and salaries so a promotion to management comes with a raise, as it would in almost any other business. It would make the restaurant industry more professional, and I'm sure that will be appealing to many servers who want to make a career in the industry.

Lastly, how significantly will this affect diners? Will the mentality of seeing a higher meal price deter them? Psychologically, are we more willing to spend money when it's broken down?

WELLS: One big fear that restaurateurs have is that we will comparison shop, looking at menus and deciding to go to the place with the lower prices, even if we know that we'll have to add the tip later. You know, if I can get lamb chops for $45 at one place and they're $54 at the restaurant with service included, will I decide to go for the "cheaper" option? And it's not entirely psychological, either, because you pay tax (8.25 percent, don't ask me to calculate that!) on the menu price. So you'll be paying more in taxes at the place where service is included.

As Danny Meyer told me, "My point is if you want your team to feel this is a professional pursuit and not just something you’re doing on the side, then tipping is just antithetical to that. You don’t tip your doctor. You don’t tip an airplane pilot. The professions where people rely on tips don’t tend over time to instill the kind of professional pride that we’re trying to do here."

As Pete puts it: this "experiment" has the potential to create long term careers in place of short term, insecure jobs. But what will happen when the Union Square Hospitality Group lays down their new service-fee fueled prices? I spoke with Amanda Cohen, of Dirt Candy on the Lower East Side of Manhattan. Her restaurant has no affiliation to Danny Meyer, but has already put in place a no tip policy.

How has implementing the no tip policy effected the mentality of your employees and the attendance of your customers?

COHEN: The most surprising thing about eliminating tipping is how little my customers have cared. I've had, maybe, two conversations with customers who didn't like it since we got rid of tipping 10 months ago. And my staff is great — my back-of-house staff are thrilled to be getting a real living wage, and my front-of-house haven't had a problem. You know, waiters are actual human beings who take pride in their work and don't have to be kept in chains and threatened with pay cuts to do a great job. The second most surprising thing about it are the number of fake one-star reviews people who have never been to my restaurant have left on places like Yelp and Google in an attempt to hurt my business. I'm not sure why they're threatened by my staff being paid fair wages.

And by the looks of the line around the block waiting to get into Dirt Candy's soft opening brunch, they're not hurting.

And not for nothing, executive chef and founder of Boathouse Restaurants in Chicago, Zoe Schor, looks forward to the possibility of implementing the no-tip method in her own restaurant. After working her whole life in various kitchen and service jobs, she can see the bigger picture this shift will bring.

"Danny Meyer has been humbly revolutionizing the restaurant industry for 30 years, and my hat is off to him for never being afraid to do things differently from everyone else," said Schor. "I would definitely consider doing this in my own place- as a diner, I don't ever mind not having to calculate a tip. That being said, there are a lot of places where, if a server is being paid by the hour and not by your calculation of how well he or she has performed, you may not receive the same service... I'll be watching eagerly to see how this plays out."

Whether the Danny Meyer experiment will soar or scare away customers, is yet to be determined.

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