Advertisement
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.

Advertisement - Article continues below

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.

Advertisement
Advertisement

Most Popular

7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020
Retired? Good Luck Getting a Mortgage, Even If You’re Wealthy
mortgages

Retired? Good Luck Getting a Mortgage, Even If You’re Wealthy

One 70-year-old’s story highlights the challenges. Prepare for more paperwork and hoops to jump through than you could imagine.
August 2, 2020
Turning 60 in 2020? Expect Lower Social Security Benefits
Coronavirus and Your Money

Turning 60 in 2020? Expect Lower Social Security Benefits

When you file for Social Security, the amount you receive may be lower.
July 30, 2020

Recommended

Tax-Free Weekend Dates, States and Savings for Back-to-School Shopping
Tax Breaks

Tax-Free Weekend Dates, States and Savings for Back-to-School Shopping

Sales tax holidays are a great way to save money on clothes, shoes, backpacks, school supplies, and other back-to-school necessities.
August 4, 2020
Sales Tax Holidays in 2020
Tax Breaks

Sales Tax Holidays in 2020

Sixteen states are having sales tax holidays this year. If you plan your shopping around these tax-free periods, you can save big on back-to-school cl…
August 4, 2020
The Finances of Homeschooling Your Kids: What It Costs, Tax Breaks, More
spending

The Finances of Homeschooling Your Kids: What It Costs, Tax Breaks, More

If you're contemplating homeschooling for the 2020-2021 school year and beyond, consider these 10 things -- from surprising homeschooling costs to pot…
July 30, 2020
Good News: COVID-19’s Social Distancing Seems to Cure FOMO
spending

Good News: COVID-19’s Social Distancing Seems to Cure FOMO

Fear of missing out can put you in debt, but social distancing means no one’s missing out on anything these days. Financially, that’s great news, espe…
July 29, 2020