Can Restaurants—and Servers—survive Without Tips?

In the past four months, since COVID-19 quarantines began, restaurants have tried everything they can think of to stay open. They've applied for PPP loans. They've switched to takeout-only. They've transformed themselves into grocery stores. They've filled their dining rooms with mannequins and ghosts to encourage social distancing. And some restaurants have decided to overhaul their business models altogether and eliminate tipping.

One of them is Bungalow by Middle Brow, a brew pub in Chicago's Logan Square neighborhood. Co-founder Pete Ternes has always been open to experimentation. Before the restaurant opened last year, Middle Brow had spent eight years as a gypsy brewery, in a state of constant change. "When [a plan] works a little bit, it's even more fun and exciting," he says. "When it starts not to work so much anymore, it's disappointing and crushing and sad, and you have to go back to the drawing board for the fourth time."

Ternes and his partners had considered opening Middle Brow without tips. This would have required paying all the employees the same across the board—both the front and the back of the house—and raising menu prices and imposing a service fee to compensate. But he let it go, mostly because he thought customers wouldn't accept such a radical change to the status quo.

As the Salty Waitress can—and has—told you, restaurant servers depend on tips for the majority of their income. Only seven states require restaurants to pay servers and bartenders minimum wage. In about a third of the states, servers get paid $2.13 per hour and are expected to work their way up to minimum wage (or more) through tips. The rest of the states require restaurants to pay varying amounts of subminimum wage, up to $9.85 an hour. It probably goes without saying that restaurant server compensation does not usually include insurance or paid time off, but we'll say it anyway, just in case you didn't know. Can you live on that?

Cooks and bussers and other back-of-house employees, meanwhile, earn more than servers, but by law, they're not allowed to accept tips. This leads to enormous disparities in wages between the front and the back of the house and sometimes great unhappiness.

Bungalow by Middle Brow decided to have a tip pool for servers and charge a 4% service fee to benefit the back of the house. Sometimes, maybe once a month, a customer would complain, but after Ternes or another manager would explain and offer to waive the fee, they accepted it.

Once Bungalow closed for quarantine, though, and then reopened as a takeout operation and grocery, there were no more servers, or really any distinctions between the front and back of the house. Everyone helped bag the groceries, assemble the pizza kits, and serve the customers who came in to pick up their food. As Ternes began rehiring employees, he decided to start paying them all the same wage and divide the tips equally. "It's an ethical way to pay people," he says. "No work is that much more valuable as any other work, especially if everyone is sharing work."

The practice of tipping is based in inequality. Starting in the Middle Ages, European aristocrats would give servants tips for exceptional service. Americans who fancied themselves aristocratic brought this practice back home in the mid-19th century. At first there was resistance. Then, after the Civil War, many formerly enslaved people found work in service jobs such as barbers, Pullman porters, and, yes, waiters. Employers didn't want to pay them actual wages. In order to survive, they relied on tips; some whites even felt that tipping suited the servile nature of Black people more than salaries, as Kerry Segrave notes in Tipping: An American Social History Of Gratuities. But it also suited restaurant owners, who were happy not to have to pay servers regardless of race. There was some resistance, but by 1926, all anti-tipping legislation was declared unconstitutional. It wasn't until 1938 that restaurant owners were required to pay servers anything all—just enough so that their hourly salary and tips added up to minimum wage. A 2019 report by the Restaurant Opportunities Centers United found that women who depend on tips for their income are far more vulnerable to sexual harassment than they would be otherwise and that white servers get better tips than Black servers. It's a shitty system all around.

In early summer, as Chicago began to reopen and Bungalow faced the prospect of dine-in service again, Ternes wondered how to keep the equal pay model going. He decided the best thing to do was to eliminate tipping altogether and pay all his employees $20 per hour, plus $120 a month toward their insurance. In order to cover that cost, Bungalow would charge customers a service fee: 10% for groceries and 15% for takeout. When it reopens its patio, it will charge dine-in customers 18%. During the pandemic, the average tip was hovering just above 20% anyway: customers were already willing to pay.

Even so, Ternes is already pretty sure profits will suffer, at least at first. "I'm almost 40," he says. "I'm not looking to get rich and have four homes. I'm just looking for a simple middle class existence and a week or two of vacation every year and a home that's not falling apart. That's what I want for my staff, too. I'm willing to part with profits for it. I hope investors realize it's a stabler investment. Faster profits upfront will be sacrificed for a healthier longer-term business and a happier staff and less turnover."

So far, about half of Bungalow's 32 workers have returned from their quarantine furlough; the rest are still collecting unemployment. Ternes says he needs to be efficient about labor and scheduling so everyone has enough hours: there's no point in bringing a worker back, even at $20 an hour, if they're only going to have one or two three-hour shifts per week.

Another Chicago restaurant, Baker Miller, also announced this month that it plans to eliminate tipping; instead of a service fee, it will raise the prices on its menu. Owner Dave Miller declined to comment until he had a better idea of how the experiment would go.

Both Bungalow and Baker Miller looked to Honey Butter Fried Chicken, a counter-service fried chicken joint in Chicago's Avondale neighborhood, for guidance. Honey Butter eliminated tips about six months after it opened in 2013. In order to cover the cost of raising wages and offering benefits, it, too, raised menu prices. When it closed for quarantine in March, the average employee wage was $14.47 per hour, significantly higher than the Illinois minimum of $8.25—although several former workers have claimed on social media that they made far less than that, closer to $12. In response to these allegations and accusations of racism among the restaurant staff (specifically a sous chef who has since been let go), owners Josh Kulp and Christine Cikowski say that when the restaurant reopens next week, they'll be raising pay across the board: $17 minimum, with $18 for leads.

Running a restaurant requires maintaining a delicate balance between expenses and income. Increasing worker pay means paying higher taxes. The cost of food is also going up, and there may be other unforeseen increases, like the cost of garbage pickup or dish soap, that require more adjustments. "We're trying to control costs," Kulp says. "We cross our fingers a lot, too."

He continues: "One of the things the pandemic has really revealed to us and to the rest of the country is that restaurant workers and service workers in general are asked to work in low-income jobs and work in conditions that, no matter how safe you're trying to be, are riskier than being furloughed at home. We need to do more as a business."

Meanwhile in New York earlier this week, the Union Square Hospitality Group announced that its five-year experiment in eliminating tipping had come to an end. "We don't know how often people will be eating out, we don't know what they are going to be willing to pay," owner Danny Meyer told The New York Times. "We do know that guests want to tip generously right now." In these hard times, Meyer said, he didn't want to deprive his staff of any potential income.

In order to make things more equitable, Meyer said that cooks and kitchen workers would benefit from a revenue-sharing system that would raise their wages 20-25%. But they would still be earning less than their tipped front-of-the-house counterparts, especially on busy weekends.

Union Square Hospitality's restaurants aren't the only ones that have returned to tipping. (Reddit's End Tipping Wiki kept a running tally, although it hasn't been updated for a year.) Studies have shown that customer satisfaction declines in non-tipping establishments; even if people are actually paying less, they still think they're paying more and take it out on Yelp. Restaurant owners say they've lost staff, who can still earn more with tips, and have had to pay 20-30% more in taxes.

It took nearly half a century for tipping to become an institution in American dining. It may take as long to undo it. As long as there's no incentive for restaurant owners to raise salaries and offer benefits to their workers—as long, in fact, as it remain a money-losing proposition to do so—why should they bother? Everybody has rent to pay, both the restaurant owners and the workers. Until more restaurants are willing, like Bungalow by Middle Brow, to experiment with providing the sorts of salaries and benefits to their workers that have traditionally been associated with office jobs, and until they're guaranteed to be successful, no one will step away from our current system, no matter how imperfect and unfair it is. It's strange the things we become attached to and how we twist ourselves to make them work.