“So, is it working?”
Ever since we eliminated tipping at Richmond Station in June 2020 — months into a pandemic that would force us to once again close our dining room in October — fellow restaurateurs in Toronto and elsewhere have been asking co-owner Carl Heinrich and I this question. Will your restaurant survive? Should my restaurant do this, too?
We don’t have an answer yet, but we do know that it is not healthy to have a workplace with gross pay disparity. It is not OK for an employee’s safety, compensation and self-worth to be dependent on a customer’s goodwill. We know that what is good for my co-worker is good for me, and eliminating tipping has enabled us to live that attitude.
Before our dining room closed, the truth is most customers didn’t notice we had done away with tipping, even as we contextualized our higher menu prices when they sat down. A few thanked us for removing the anxiety they feel while paying, sitting in judgement of wait staff whose livelihood they hold in the balance.
When we transitioned to a delivery and takeout model, the context for tipping became different entirely. Most people don’t tip on food they order at home, and many people seem to think of these prompts in the app ecosystems as a distraction and a delay.
At Richmond Station, the response from staff continues to be very encouraging. Eliminating tipping has allowed us to put pay, race and gender equity at the core of our company’s compensation model for the first time. That sounds shameful to even admit, but until we took the step to eliminate tipping, we truly weren’t even in the financial position to control the compensation. So how could we ever manage the equity of it?
The reason more restaurants don’t eliminate tipping is because it’s viewed as risky, expensive and unproven. We were very close to making this change in 2016, and again in 2018. We knew it was the right thing to do, but we were afraid of the business risk. We were afraid we would lose staff. We were afraid we would lose guests. We were afraid we would lose revenue.
The pandemic removed those risks — by taking away our staff, guests and revenue. In March 2020, we laid off our entire staff, including ourselves. As of this writing, our year-over-year sales are down $2,000,000, and we add nearly $10,000 to that number every day. In this economy, we have less to lose, not more to lose.
At a time when revenue is scarce and unpredictable, most businesses want to avoid new expenses, and eliminating tipping results in just that. How is it more expensive? Well, we are using the new revenue found from raising menu prices to raise wages by the same amount, dollar for dollar. A meal for two that used to cost guests $100, plus an average of $18 tip, now simply costs $118. That $18 is distributed as insured and pensionable earnings, and as an employer we incur payroll taxes as a result.
That’s all to say that the $18 tip that didn’t cost our business anything before now costs us $1.35 in additional taxes when it’s distributed as wages. Scale that up to $1,000,000 in annual tips distributed as wages, and you begin to see the challenge for what it is.
“The elephant in the room, of course, is that eliminating tipping has been tried before and has often failed.”
Don’t get us wrong, we want to pay those taxes. Those taxes help support our employees when they cannot work in the form of Employment Insurance and other social safety nets. We knew that in 2016 and 2018, but balked at doing the right thing.
We know now that they would have made us a better employer and our staff more secure during the pandemic. Recently we have had to temporarily lay off more staff. But when our dining room reopens, they will return, again, to a set wage that will not rely on dining room capacity to fulfill their income standards.
What might have helped us make the change sooner, and help others to follow our lead now, is government support to eliminate this added expense for restaurants. The Ontario government could look to the Quebec model, which gives restaurants a refundable tax credit on tips and service charges added to a customer’s bill. Until then, we look at our new payroll expenses as the necessary cost of innovating at a time when our industry is turned upside down. Only time will tell if it was the right type of innovation.
The elephant in the room, of course, is that eliminating tipping has been tried before and has often failed. Most prominently, Danny Meyer of Union Square Hospitality Group in New York City made a bold effort to eliminate tipping across several restaurants in a hope to address pay parity issues and to professionalize his industry. The pandemic forced Danny Meyer to walk back from his “Hospitality Included” model, just as we are introducing ours. And in Toronto, we have had our share of bars and restaurants attempt to eliminate tipping, only to admit their “error” or fail trying.
So, why aren’t more restaurants making the change to eliminate tipping? The single best answer is that few businesses have been able to make it work.
Unlike in 2016 and 2018, that doesn’t bother us anymore. As counterintuitive as it might seem, returning from the lockdown to a decimated economic environment, a business model that survives only with government props and a future revenue stream that defies modelling, we feel there is less risk right now, not more.
In 2020, we know that tipping is inherently flawed. The social upheaval in our culture right now has encouraged us to focus less on what will work and more on what is right. We’ll make it work, now and when our dining room reopens. There is no future for businesses that bury their conscience in their balance sheet.
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