“Once you consider the alternative, most would agree that everyone would be better off if we all put an end to tipping,” writes Anish Mehra, owner of East India Company.
Already an Insider? Log in
Get Instant Access to This Article
Become an Ottawa Business Journal Insider and get immediate access to all of our Insider-only content and much more.
- Critical Ottawa business news and analysis updated daily.
- Immediate access to all Insider-only content on our website.
- 4 issues per year of the Ottawa Business Journal magazine.
- Special bonus issues like the Ottawa Book of Lists.
- Discounted registration for OBJ’s in-person events.
Click here to purchase a paywall bypass link for this article.
It’s becoming more common every day: you go out somewhere, purchase something, and when you go to pay, you’re prompted to add a little something.
Tipping has become part of the North American hospitality industry and, for the most part, people go along with it. However, many industry professionals are becoming frustrated with the system.
But wait, you say. Tipping provides an incentive to the worker to provide excellent service, it helps service providers make a better wage, and it feels great knowing you were able to directly help and reward that service provider. All of these reasons are flawed and, once you consider the alternative, most would agree that everyone would be better off if we all put an end to tipping.
To help think this through, let’s look at how tipping affects everyone.
The guest is the first link in the chain of the gratuity system. When asked, most people would say that they tip to reward or ensure excellent service. However, many studies have shown the act of tipping often has little to do with the actual service provided. More often, physical attributes, age and sex have a bigger role to play.
The next link in the chain are the people who are probably most influenced by tips: servers and bartenders. If you ask the average service provider, they would say they love tips. But there are a lot of issues that many of them aren’t considering. First, gratuities have been used as an excuse to pay servers less. Many provinces have a separate wage for tipped/liquor servers, but tips are not guaranteed wages and this results in inconsistent pay. Tips are also often not reported and this becomes a real issue when we face problems like the recent pandemic. Employment insurance applications are based on reported wages, meaning many servers are now only making 55 per cent of their reported wage and no tips, which can make getting by almost impossible. As tips move from cash to credit transactions, it is only a matter of time before they are fully tracked and become taxable income for servers. Once that happens, the incentive of non-taxed income will disappear.
As mentioned, tipping often creates a separate wage for professional service providers that is below the standard minimum wage. People are often okay with this because serving is something often done as a first job and the tips normally bring you up past the minimum wage. However, I need to be clear here: serving is a profession. North America is one of the few places that does not treat it as such. In other countries, servers are usually not tipped, but they make a higher, livable wage and their work is considered a respectable profession. Here, many operators cannot afford to differentiate or reward more professional servers because a big portion of the income that goes towards these employees is outside of their control.
There is another group that the average consumer forgets about when thinking of restaurant staff. That is the chefs, cooks, dishwashers, expediters, bussers, hosts and floor supervisors/managers. Of course, servers are the main point of contact for guests when visiting a restaurant, but it takes many people to create that one night out. Over the years, gratuities at restaurants have created many internal conflicts. Some restaurants have set up tip-outs for other staff members, others try tip pooling, some leave recommendations but leave it to the discretion of the server. No matter the system, at most restaurants, the majority of the staff are not happy about how it is split up. The frustration for many is that this skewed method of payment ignores their skills and contribution.
For example, let’s imagine a trendy restaurant in downtown Ottawa. The majority of servers there are part-time workers who may go to school or are picking up night shifts as supplemental income. The average server makes the standard hourly wage of $15.50, but after a night of serving excellent food and drinks, they make an extra $150. On a six-hour shift, that’s an extra $25 per hour for a total of $40.50 and a large portion of that is undeclared. Meanwhile, in the kitchen, you have a sous chef who attended culinary school for two to three years, typically arrives a couple hours before a shift to prep (sometimes unpaid), and typically works in an intense, hot environment and is primarily involved in the creation of your meal. This employee’s hourly wage is usually between $17 and $25. Even if there is a tip-out scheme in place, the most this will contribute is $4 to $6 per hour.
Next up in the food chain is the restaurant owner(s). Let’s get the basics out of the way: the majority of owners are not moustache-twisting schemers trying to steal/sexually harass/cheat their employees. Most restaurant employers put in 16-hour days, forgo weekends with their kids, serve tables, clean dishes, skip the weekend poker game, host, bartend, go back to work a week after having a baby, and try to help employees through loans, education and any other form of support they need. Yes, this too is a bit of an exaggeration but talk to a lot of owners and I’m sure most will identify with it.
However, none of this has to do with tipping. In most cases, owners being part of the tipping scheme is looked down upon, even if they are part of the service dynamic at the business. However, when things do not go well, owners are held fully responsible. For example, let’s say a server forgets to punch in one of the guests at the table. Often, the owner will have to comp the meal, possibly the whole table’s meal. Owners often have to cover many similar costs such as breakage, theft and pilferage, which gets chalked up to the cost of doing business. The frustrating part for many is that tipping removes their control on possibly 15 to 20 per cent of potential income. If tipping were removed and businesses were able to increase their prices accordingly, it would give owners the ability to better distribute the funds to all their employees and cover the expenses of running the business.
Most people would assume that, at this point, the list of people whom tipping affects is complete. However, it continues to ripple out. Beyond specific individuals, tips are part of an underground economy that harms society. To begin, the majority of tips are not taxed. If they were part of an overall bill, they would be taxed in a number of ways: income, corporate profit, higher EI and CPP contributions, and as part of consumption taxes (GST and PST). In 2017, restaurant sales in Canada were approximately $85 billion. Let’s assume half of those sales were at establishments where there was some tipping involved and let’s say the average tip was 10 per cent. That means there was a little over $4.5 billion in tips that were not taxed in any form. Beyond our own citizens, tipping hurts citizens from other countries. Many cultures and countries no longer have gratuities. When these people go out to establishments in North America, they are often looked down on and, in some cases, servers avoid serving them because they assume there won’t be any gratuity.
Some may argue counterpoints to everything I’ve mentioned above: “Nothing is wrong with gratuities, they are simply there To Insure Prompt Service (T.I.P.S).” So why don’t we use tips everywhere to ensure prompt service? Why can’t I hand the guy at Service Canada a twenty to move me to the front of the line for a new health card? Or how about if I slip $5 to my city councillor to get my sidewalk repaved first this summer? These activities were going to happen anyway, I’m just trying to ensure prompt service. However, in both cases, it is considered bribery and would never be acceptable.
Over the years, a number of restaurants have tried to cut out gratuities but have run into trouble because this has to be adopted industry-wide to work. Otherwise, guests begin tipping again, above the built-in charge. Eventually, guests become upset that the restaurant seems more expensive, servers and restaurant staff are dissatisfied with the inconsistent tips, and management begins having the same issues around managing tips.
Stopping the practice of tipping would be difficult in the first year. However, once restaurant owners, employees and patrons felt the benefits, the vast majority would adapt to the new normal and be better off for it.
Anish Mehra is owner of the East India Company.
