Comment by kelnos
2 days ago
It's not that simple. Restaurant owners don't pay payroll taxes on tips, but they do pay it on regular wages. Raising restaurant menu prices by 20% (or the average tip amount) will not result in 20% (or the average tip amount) more going to the workers. Some restaurants have tried this out, and it's backfired. Restaurants already run on very thin margins; a loss of a few percent can kill them.
Also consider that customers will get sticker shock: even though they are ultimately paying the same price, seeing 20% higher prices on the menu will make them spend less. Yes, it's dumb, but human psychology is dumb, so there we are.
(Folks in Europe are used to the listed price being what they pay. In the US businesses don't generally list tax-included prices, but businesses that do include tax in their prices end up looking -- in the eyes of customers -- as more expensive than those that don't, even when the final prices are identical.)
> Also consider that customers will get sticker shock: even though they are ultimately paying the same price, seeing 20% higher prices on the menu will make them spend less. Yes, it's dumb, but human psychology is dumb, so there we are.
It's not dumb; it's just that paying that 20% to the waiter is a lot easier to stomach than a 20% increase to the restaurant owner.
"Some restaurants have tried this out, and it's backfired. "
Where I live, many restaurants have the "required 18% gratuity" thing and ask that you not tip beyond that. Maybe this is a PNW hippie specific thing, but a movement against tipping exists and is being ran by some good, successful, restaurants.
Making the tip required isn't a movement against tipping, it reenforces the idea.
Try increasing the posted food prices by 18%, or add a "18% owner boat fund", instead and see what happens. You won't last the week before you are bankrupt. The amount is exactly the same, so from a financial point of view there is absolutely no difference, but the experience of "helping out the little guy" is lost, and that will chase clientele away. For all the huffing and puffing we hear, actions speak louder than words. The reality is that customers like tipping!
Personally, I hate the whole concept of tipping as promoted in the USA.
I see it as a way that owners can avoid paying the relevant taxes for employing their staff and instead offload part of that payment onto the customers. The arbitrariness of it also annoys me - why just waiting staff?
I'm in the UK, so we mainly have service charges added to the bill to take the place of tips which is a much better system. I also like the Japanese culture of non-tipping and that they may get offended by customers leaving tips.
2 replies →
> Restaurant owners don't pay payroll taxes on tips, but they do pay it on regular wages.
Payroll taxes in most jurisdictions are based on wages, not profitability of the business. A non-issue, well, except maybe for the server who has grown accustomed to making $50/hr. No tips and those days are long gone.
> Some restaurants have tried this out, and it's backfired.
Yup. Hard to win customers when tipping is part of the experience. I mean, it can be done where it isn't — McDonalds survives, thrives even, without tips — but if you are trying to run the type of restaurant where the customer comes to tip it doesn't fly. You have to give the customer what they want at the end of the day, else they'll go somewhere else. This is the challenge businesses face.
> Restaurants already run on very thin margins
Exactly, and if you increase the volume then the product of the margin gets bigger. Remember, Walmart and your average restaurant have the same profit margin! Walmart's advantage is that they handle way more money, so the total amount that margin represents is huge. If a restaurant can also handle more money...
> seeing 20% higher prices on the menu will make them spend less.
Even just, say, 1% higher still means more cashflow through the business, which means more cash to take a cut from. You are right that the full 20% would unlikely ever be realized, certainly not right away, but it doesn't need to be to still be advantageous. But until you figure out how to convince the customer to change their preferences about tipping, good luck.
There is absolutely no obligation to leave a tip. One only does so because they want to!