Danny Meyer is eliminating tipping at The Modern, Gramercy Tavern, Maialino and his other NYC restaurants. While Danny Meyer isn't the first–restaurants from Thomas Keller's Per Se to Tom Colicchio's Craft, which has eliminated tipping for its lunch service, to Bruno Pizza in the East Village, already include gratuities in the menu prices, so there is no need to tip.
But Danny Meyer is making headlines because this will be the first time a U.S. restaurant group with the size and heft of Meyer's Union Square Hospitality Group, which has over 1800 employees and includes 13 restaurants, from 2 Michelin Star The Modern (see Top 5 Best Value NYC Michelin Star Restaurants) to casual eateries such as bbq joint Blue Smoke, makes the leap.
Here are excerpts from Meyer's letter to diners, bolding mine:
“There are countless laws and regulations that determine which positions in a restaurant may, and may not share in gratuities. We believe hospitality is a team sport, and that it takes an entire team to provide you with the experiences you have come to expect from us. Unfortunately, many of our colleagues—our cooks, reservationists, and dishwashers to name a few—aren’t able to share in our guests’ generosity, even though their contributions are just as vital to the outcome of your experience at one of our restaurants.
The Modern will be the first Danny Meyer restaurant to eliminate tipping, starting in late November. This makes sense, since as Meyer's leading fine dining restaurant (having sold Eleven Madison Park a few years ago to Chef Daniel Humm) The Modern is most acutely in need of more competitive salaries for its kitchen and back of house staff, and its well-heeled diners are less price sensitive than at some of Meyers' other restaurants.
Gramercy Tavern, Maialino, Blue Smoke and other Union Square Hospitality restaurants are slated to have tips eliminated over the course of 2016, after the team analyzes the date of The Modern.
Why is Danny Meyer Eliminating Tipping Now?
There are several reasons why Danny Meyer is returning to no tipping (yes, returning–he had planned back in the 1990s, with then Union Square Cafe partner Tom Colicchio, to eliminate tipping–but servers resisted the idea so he gave it up).
1. Attracting and Retaining Talented Cooks
Danny Meyer (and likely other NYC restauranteurs) are facing a shortage of talented cooks and back of the house staff, due to the increasing pay gap between what these staff earn vs. what most servers earn, taking tips into account. And since tips are by law not allowed to be shared with non-tipped staff, this means needing to raise prices in order to continue to attract and retain cooks and dining room managers. Even in NYC's top restaurants, a mid-level cook rarely earns more than $35,000-$40,000 a year. In contrast, the best earning servers in these restaurants can earn $100,000 or more a year, most of it in tips.
2. NYC is Raising the Minimum Wage of Fast Food Workers and Servers
Starting in December, NYC fast food workers will have a minimum wage of $10.50 per hour, and this will rise over the next 3 years to $15 per hour. Starting in January, New York state's minimum for staff who earn tips goes up to $7.50 per hour (most currently earn $5 an hour), so a $2.50 per hour increase; meanwhile, the minimum for salaried workers will go up to only $9 from the current $8.75, exacerbating the disparity between servers and cooks.
3. Get the Kitchen and Front of House to Pull Together as a Team
Given the increasing pay disparities, which are starkly on display on a big weekend nights, when servers have pulled in most of their weekly earnings from tips while the kitchen has nothing extra to show for all its hard work, Meyer firmly believes now is the time to change the dynamic with his “Hospitality Included” no tipping change. As part of the no tipping change he intends to implement a revenue share program for dining room staff that are currently tipped, so that most will do at least as well if not better than current tipping system, and ultimately kitchen staff will also be part of a revenue share program, although that will come later.
How Much Will Prices Increase?
Right when The Modern first implements its No Tipping, prices are expected to rise 20-25%, which is what most guests pay currently in tips (note that a typical tip at a good NYC restaurant is 20%, and exceptional service is usually tipped higher than that, at 25%–see Tipping Guide for NYC)
But it's possible prices will need to rise higher than that. That's because Meyer is facing a tough balancing act: restaurants, especially fine dining ones, are NOT high margin businesses, contrary to popular belief. In addition to increasing salaries for cooks and back of house staff and implementing a revenue share program that will make up for lost tips, Meyer will lose the FICA tax credit (more on this below) to the tune of $1-$1.5 million total annually for Union Square Hospitality Group restaurants. He'll also be paying more in rent, since restaurant rent is usually calculated as a percentage of revenue, which will now be higher since it will have all service baked into it.
Why Don't More U.S. Restaurants Eliminate Tipping?
There are several reasons most U.S. restaurants are not planning to eliminate tipping. A huge one is financial: restaurants are able to receive back most of the money they pay in taxes on servers' tips via the FICA (Federal Insurance Contributions Act) tax credit. Once these servers are on a regular payroll plan and not tipped, no such tax credit applies.
Well-tipped servers and bar tenders are the other big reason most restaurants are leery of introducing a no tip policy. For the top servers and bar tenders, their effective hourly pay can be $50 or more, the bulk of it from tips, and most restaurants aren't in a position to compensate at that level due to the menu and drink price increases that would require.
Finally, much of the restaurant business is very price sensitive, particularly more casual eateries. While plenty of diners claim they would like a no tip policy, what they really mean is they would like the current menu prices without the cost of a tip. Once you do factor in the tip, or even the total hospitality charge of the entire restaurant team, as Danny Meyer plans to do, quite a few diners will simply go elsewhere for lower prices.
It's no different, unfortunately, than fair trade items: many more consumers say that they support fair trade goods than will actually pay more for coffee made from fair trade coffee beans or clothing that pays garment workers a fair wage in more humane conditions. The jury is still out on whether Danny Meyer's plan will work, though I for one am supportive–I've long thought it unfair that the chefs and cooks working behind the scenes at a restaurant don't get part of the tips, particularly since I tend to choose restaurants first and foremost for the quality of their food, and secondarily for their service, though of course I still value excellent service.
What do you think-should all U.S. restaurants eliminate tipping?
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