Packhouse Meats, a restaurant that opened in Newport, Kentucky in January, doesn’t allow tipping. Instead, it pays its employees a decent wage.
Servers at the restaurant make a minimum wage of $10 an hour. But they can also make 20 percent of their sales in commission — which is based on sales volume, the quality of service, and a few other factors — if it’s higher than that wage. This means that, on average, the servers are making $15 an hour. “Ten dollars an hour becomes a safety net,” explained owner Bob Conway. “When you come in and it’s dead, or you’re working through the middle of the afternoon and we don’t really have any business,” that $10 might kick in.
That’s much higher than the tipped minimum wage, which in Kentucky as well as nationally is just $2.13 an hour. While businesses with tipped employees are required to make up the difference if tips don’t bring that wage up to the $7.25 floor for all other workers, they often shirk that duty.
Conway decided to institute this different model when he opened up his new restaurant. His family owns a restaurant company that runs some TGI Fridays in the area. “I’d just been hearing a number of horror stories from Fridays servers talking about waiting on a table of 30 and getting tipped $5 on a several hundred dollar check, and those stories were happening more and more often,” he said. While 20 percent is considered a standard tip, three-quarters of customers admit that they leave less and 11 percent don’t leave anything. “We were losing servers because they couldn’t make any money.” He also noted that servers usually have to come in and do work before they start serving customers, often at the $2.13 tipped minimum wage. “I don’t think that’s really fair,” he said.
The new model was “done to protect the servers, and by protecting the servers, reduce turnover,” he said. Since Packhouse opened, there hasn’t been any turnover that wasn’t due to firing someone for failing to meet the requirements of the job. “None of the servers are leaving because they’re not making enough money,” he added. That’s good for the restaurant’s bottom line: turnover can cost as much as 20 percent of a workers’ pay. It has also raised quality. “If we’re paying our servers well, we can get high-quality servers, and if you have high-quality servers then the quality of service is better,” he said. “Generally I think that’s what we’re finding.”
The new model was also instituted to better compete with other chains that don’t have tipping. “Full-service casual restaurants have been getting beaten up in the recent economy,” he said, “and the biggest hit is from restaurants in what’s called fast casual in which there is no tipping.” Think Panera or Jimmy Johns: eateries where the ordering is done at the counter without tipping a server.
There have been some tradeoffs. While ultimately the amount of money a customer spends is the same, the price of food has had to rise to cover the higher cost of labor, although it’s not a full 20 percent increase. For his servers, they no longer leave with an untaxed wad of cash in their pockets at the end of their shifts, nor can they look forward to blockbuster tips.
But he still thinks it’s a much better model. While he wouldn’t tell other restaurants what to do, he does think more will try eliminating tipping in favor of a higher wage. “Ultimately, it can stabilize your business model,” he said.
Tipping comes with other ugly consequences. Attractive women get larger tips, particularly if they are young, large breasted, blond, and have a smaller body size. White servers get bigger tips than black ones. While defenders of tipping say they just want to incentivize better service, rarely does tip size correspond with the actual experience. The perception of service only accounts for about a percentage point change in the size of a tip.
In light of all of this evidence, other restaurants have done what Packhouse has, although they have so far tended to be high-end eateries. Two different pricey sushi restaurants in New York City have gone the route of abolishing tipping in favor of a higher wage, as did a handful of other fancy places in the city and The Linkery on the West Coast. But it has started to trickle down to more affordable joints, first with a brewpub in Washington, D.C. and now with Packhouse Meats.