If you're a restaurant owner, the thought of implementing a no-tipping policy may or may not have crossed your mind. After all, doing away with the restaurant gratuity system has some advantages. Before you decide to eliminate restaurant tips, you should consider both the pros and cons.
Sometimes restaurant servers or bartenders, for one reason or another, receive just a small amount of tips on a given shift. According to the United States Department of Labor, the Fair Labor Standards Act (FLSA) only requires a restaurant owner to pay a tipped employee "$2.13 an hour in direct wages if that amount plus the tips received equals at least the Federal minimum wage ... If an employee's tips combined with the employer's direct wages of at least $2.13 an hour do not equal the Federal minimum hourly wage, the employer must make up the difference." Regardless of the scenario, the tipped employee may walk away from a shift with very little earnings. This is refered to as the tip credit. It is important to note that states also have their own tip credit laws, and some states (for example, California) don't permit tip credits. In these states, employers must pay their employees the full minimum wage in addition to the tips they earn. If you are unsure about the law in your state, the U.S. Department of Labor provides clear information about state requirements.
When you eliminate tipping and pay your wait staff at least the minimum wage, they'll be able to make a fixed income. This type of payment system can help offer employees stability and, in turn, removes many of the worries that come with variable earnings.
Moreover, the decision to eliminate restaurant tips can serve to simplify the dining experience for both your customers and your employees. After all, customers will no longer need to calculate tips, and servers will no longer need to keep track of them. The overall dining experience can also be more enjoyable when less focus is placed on the amount that needs to be paid at the end of the meal.
Depending on your state wage and hour rules, if your staff receives substantial tips, you may be required to pay less in direct wages. As a business owner, this is one of the biggest advantages of a restaurant gratuity system. If you decide to eliminate tips at your restaurant altogether, you will undoubtedly have to pay your staff members more out of your own pocket. In order to make up for this loss, you may have to increase your menu prices. In turn, your customers will have to pay higher prices than they had in the past for the same meals (although this may be offset by the fact that they do not need to leave a tip).
Another potential disadvantage is that, without the promise of a tip, your employees may be less inclined to provide good customer service. If this happens, you will need to effect a cultural shift to keep your employees fully engaged in their work.
This information, combined with a review with your finance professionals, can help put you in a better position to determine if the decision to eliminate restaurant tips is right for your small business.
Featured on THRIVE
SIGN UP FOR THE THRIVE NEWSLETTER