Sign up for the BETTER newsletter

You have been successfully added to our newsletter.

You will be up to date with all our BETTER updates, including special offers

NBC News BETTER brings you wellness news and tips to make the most of your mind, your body and your life.

Are American Restaurants Reaching a Tipping Point on Tipping?

by Kate Drew, Special to CNBC /
Image: Waiter brings dishes to dining roomGerald Herbert / AP

To tip or not to tip? It's hard to tell these days.

Some restaurateurs in the U.S. are starting to ban tipping and raise overall menu pricing to compensate. Danny Meyer's Universal Hospitality Group announced its decision to end tipping in its restaurants this week. It's an effort to balance wage inequality in the industry — chefs and kitchen workers often bring in less because their pay is not subsidized with tips.

"It's troubled me for 21 years that the tipping system is antithetical to creating a real profession for people who takes their jobs seriously," Meyer told CNBC on Friday. "You don't tip your doctor if they do a good job. You don't tip the airline pilot if the plane lands. ... It's actually a demeaning practice."

But unless broadly embraced by restaurant companies across the $730 billion U.S. dining industry — which restaurant experts are skeptical will happen — it's likely to lead to confusion among diners.

"People won't know whether to tip or not when they go out to eat," said Aaron Allen, founder of restaurant consulting firm Aaron Allen & Associates.

Of all the restaurateurs abandoning gratuity, the most notable is Meyer, whose company owns the famed Gramercy Tavern in New York, as well as The Modern, which will be the first of his places to abandon tipping. Meyer said he is eliminating tips across the Group's restaurant portfolio to balance wages among the staff.

"We believe hospitality is a team sport, and that it takes an entire team to provide you with the experiences you have come to expect from us," he said in a statement when announcing the move on Thursday.

Meyer's heart seems in the right place, but his plan may not work as well as imagined. He'd have to raise prices by about 20 percent to compensate for the lack of gratuity. That is the standard amount to tip these days, Allen said. An entrée at Gramercy Tavern costs $19-$24, with a 20 percent markup, that's $23-$29 for a meal. With tip, it's the same — but diners can be emotional.

Meyer told CNBC diners will see the exact same price on the check as it would have been if, like an average New Yorker, they are leaving 21 percent tips. He confirmed that his restaurants will have to raise prices by a level in the "low 20s percent."

Warren Solochek, president of NPD's food service division, said that people may choose to go to places that are comparable but include tipping, just so that they can feel in control of their bill. "It is absolutely a psychological issue," he said. "It's also an economic issue."

There still is the perception that a customer is paying more, Allen said, when a restaurant puts an extra dollar sign next to menu items, even if the bottom line is same.

Meyer said the average American doesn't understand what happens to a tip, that the waiter may share with other waiters and bartenders but not with the cook, dishwasher or the person who took your reservation.

Shake Shack IPO Could Net $140M for Danny Meyer

There is a way that no-tipping policies could actually make meals more expensive. It's in the American culture to tip, and that temptation is always going to be there, Allen said. Even if there is no tip line on the bill, diners might still be inclined to leave something in fear of seeming impolite. And, if they're unsure whether or not a restaurant is a tipping or non-tipping one, that would likely lead to a lot of gratuities left "just in case."

To avoid accidental tipping, all the restaurants in the U.S. would have to adopt a no-tipping policy — which is unlikely. On the flip side of doubled-tipping would be situations in which diners think a tip is no longer required even when a restaurant doesn't have a no-tipping policy and has not initiated a wage increase for workers. It would be a new way to "stiff" restaurant staff.

Many applauded Meyer's decision, pointing to the fact that wage problems are rampant in U.S. restaurants.

"Eliminating the two-tiered wage system is essential to ensuring a fair and just future for the nation's 11 million restaurant workers," Saru Jayaraman, co-director and co-founder of Restaurant Opportunities Centers United, said in a press release. But if diners forgo eating out completely, this will all be moot.

And a number of other restaurant owners have already implemented no-tipping policies. Amanda Cohen, owner of Dirty Candy in New York, charges a 20 percent administration fee in lieu of tips. At Tom Colicchio's flagship Craft restaurant, lunch service is tip free. "It's time for a change. It's time to pay the servers a salary," he told Eater.

Meyer said wage inequality is only part of the issue — it's a critical recruiting issue for good restaurants. He said the industry is facing the "biggest labor shortage in culinary talent we've ever seen in this country. ... People can't afford to go to culinary school and then take a $9 to $10/hour job."

But other restaurateurs aren't so sure. "Tipping is a way of life in this country," Drew Nieporent, a restaurant owner in New York and London,told The New York Times. "It may not be the perfect system, but it's our system. It's an American system."

"I would call it an experiment for the restaurant industry as a whole," Solochek said.

Meyer said that it's not the restaurant industry as a whole that he's looking to for change — or that compelled him to action. The threat he sees is that the restaurant industry is "absolutely going to look at the end of fine dining as we know it." With fast food wages on the rise, "Why would you ever want to work in a high-end restaurant when you can get paid more to make tater tots?" Meyer said.

Subscribe

Let our news meet your inbox.

Subscribe

Let our news meet your inbox.
MORE FROM better