Recent debates over raising the minimum wage and lowering tip credits have renewed interest in the question of whether restaurants should replace tipping with service charges or higher service-inclusive menu pricing. Indeed, a number of restaurants ended tipping last year—though some have since restored the practice. Cornell Professor Michael Lynn comments on these developments in a new report, “The Business Case for (and Against) Restaurant Tipping.” Lynn is the Burton Sack Professor in Food and Beverage Management at the Cornell School of Hotel Administration and a widely recognized expert on tipping.
Lynn’s detailed report examines evidence about the effects of tipping versus service charges and service-inclusive pricing on the attraction and retention of service workers, the satisfaction of customers with service, the actual and perceived costs of eating out, and the costs of hiring employees and doing business. Of these factors, Lynn concludes that restaurant owners might particularly want to consider the effects of tipping policies on customers’ price perceptions and on servers’ income.
While it’s true that tipping allows restaurants to offer lower nominal prices, tip income tends to benefit servers more than it does the restaurant owner—and it allows servers to earn considerably more than workers in other restaurant jobs. “Upscale restaurants tend to have less price-sensitive customers, and those restaurants also have larger pay differences between the front- and back-of-house staff,” Lynn says. “So they should seriously consider doing away with tipping, and instead add a service charge or simply raise prices to cover a higher payroll.”