Nearly all restaurants in the United States operate under the tip system: Servers and those in the back of the house — chefs, line cooks, dishwashers, etc. — are paid a lower-than-average standard minimum wage, and then they earn tips to make up for the pay disparity.
In the past few years, though, some restaurateurs have embraced a gratuity-free model. That includes Andrew Tarlow, the owner of several prominent restaurants in New York City. In 2015, he decided to shake things up, eliminating the tip altogether at three of his restaurants and raising his workers' salaries, as well as the prices of menu items.
"We were really trying to eliminate the wage gap between the back of the house and the front of the house and solve for some problems that happen inside of restaurants that we thought we could fix by removing tips," Tarlow tells Here & Now's Jeremy Hobson.
While Tarlow moved the restaurants back to a tipping model earlier this week, citing cost issues, he still believes a gratuity-free model is best — but customers are not quite ready for it.
"[In an] ideal system, it would be like every other business, where the leadership and/or boss defines the rates of pay for all their staff and they can give raises to their staff, and not hope that people can make more money by working a Saturday night or working a Friday night versus working a Monday lunch," he says. "Culturally, it doesn't technically work at this moment.
"The guests have not bought into that practice, and in the end, they want to see cheaper prices on the menu to buy into the value of eating out in a restaurant."
On why he shifted three of his restaurants to a gratuity-free model
"We wanted to really share with our guests the total price of dining out and change the dynamic of our staff, that we were effectively their boss — which we were obviously and responsible for their rates of pay and responsible for their raises and for their bonuses — but we wanted to put the price of the whole experience of eating out on the check."
On how his employees reacted to the new system
"I mean, there was a [mix of reactions]. No one really likes to have their pay changed. I think it's definitely a struggle. But in the end, I think it did work out from a staffing standpoint for us.
"Certainly, we did lose staff. … But at that point we were fully staffed and we had a committed group of people working at the restaurant."
"In the end, they want to see cheaper prices on the menu to buy into the value of eating out in a restaurant."Andrew Tarlow, on resistance from customers toward a no-tipping model
On how customers reacted
"From an emotional standpoint, from a speaking standpoint, I think it was a better experience for the diner. They don't have to worry, or there is no anxiety about how much money to leave. 'Should I leave this much? Should I leave that much?' In the end, it is one bill and one number to sign, so in that capacity, it actually worked."
On why a gratuity-free model did not work out
"In the end, we really couldn't raise the prices to the full value that we needed to to pay for all of our staff and pay for the quality of food that we purchase. And so it created whole new financial problems for us, because at the table, people make micro-decisions about what they buy based on price.
"If I tell you the burger is $19, maybe you guys would have two of them if there were two people there. If I told you it was [$25], maybe you guys would share it. A burger might be a bad example, but a half-chicken would be a better example, where you'd say, 'Well, yeah, we'll both have that, and we'll have two appetizers.' Where, if I tell you the chicken really costs $42, you're like, 'Well, let's have two appetizers and one chicken instead.'
"I use the example of the airlines a lot. We all make decisions about what flight we take, and we might choose to take the 6 a.m. flight, because it's $50 cheaper or $20 cheaper. In the end, by the time we get to the airport, we're like, 'Wow, I wish I didn't have to wake up at 4 o'clock in the morning to get here. I'd rather pay the $40, and I'd rather go at 9 o'clock.' "
On how his employees reacted to the recent switch back to a tipping model, and why he thinks New York should open up the statewide tipping pool
"Everyone again is a little apprehensive, because change always is a little shaky. As you know, we were an oddity in the marketplace. Ninety-nine-point-nine percent of all restaurants operate this way. So it's really kind of going back to the way we used to do business and the way most people do business.
"We maintained all the raises that we gave the back of the house in this plan. The thing we're really trying to advocate for now is to open up the tip pool in New York state so that we can share the money with the whole chain of service for that night, meaning all the dishwashers and all the line cooks and all the servers who are involved in that service. The tip pool is locked in New York state, so we can't share that money, and I think that would be a huge help to the back of the house and to the total team to feel like everyone's working together."
On whether he thinks the minimum wage for servers should increase
"Hundred percent. I believe it should be one fair wage, and it should be the standard minimum wage for whatever state they operate in.
"But they have to open up the tip pool in conjunction to share with the back of the house. It's not fair if the front of the house is only getting the full 20 percent, and they're not sharing with the rest of the team. Those two pieces go together in my mind."
On how he thinks the service industry in New York City is doing
"It's been difficult. It's been hard to take on all the labor challenges that we have in New York City and then all the regulatory requirements, and it's a very litigious business right now. There's a lot of wage and hour lawsuits around. So it's a very difficult business. But still, overall, from a business standpoint, I think it's still positive. Obviously, New York is still a great place to go out and a great place to eat out in and see people and congregate, so in that capacity, I think it's good."
Julia Corcoran produced and edited this interview for broadcast. Jackson Cote adapted it for the web.
This segment aired on December 19, 2018.