Business Costs & Regulation

Should Restaurants Raise Prices and Eliminate Tips?

Saying goodbye to tipping would address fairness and income reporting concerns.

Q. A restaurant I have long patronized has just abolished tipping—apparently by raising prices 25% or so. I’ve always liked being able to tip my server more or less according to the service I receive. What do you think?

 

A. I used to feel as you do, typically tipping 15% but often adding another 5% or more for special service. And I’ve always tipped a much higher percentage of a small check, on the grounds that it took the server as much effort to serve me a simple meal as a fancy one.

That said, the no-tipping concept is growing on me. It addresses several problems. For one, tipped servers usually earn much more than kitchen staff, who work just as hard and whose talent is the soul of the restaurant. Tips are often capricious, largely unrelated to the quality of service. If a server is randomly assigned to wait on a curmudgeon who always tips too little, that server will be unfairly penalized. That’s why pooling of tips among all waiters—and perhaps kitchen staff, too—is a good idea.

Because the amount of the tip is based on the size of the bill, diners have sometimes wondered if the server has an ulterior motive in encouraging you to add a few pricey side dishes and desserts, or in recommending an expensive wine. This pressure (or suspicion of it) goes away in a no-tip environment.

So does the IRS’s suspicion of widespread underreporting of tip income by waiters and other service employees. In a no-tip environment, employers must pay every employee a competitive wage (and, I hope, competitive benefits) and would withhold income taxes. Servers would earn Social Security credit on all their earnings, and their income would be more predictable in a busy or slow season. And, yes, you should assume that the real cost of labor, in the dining room and kitchen, will be built into the menu pricing.

Have a money-and-ethics question you’d like answered in this column? Write to editor in chief Knight Kiplinger at ethics@kiplinger.com.

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