Since the beginning of time, tipping in North American restaurants has been commonplace. As a way to show appreciation and pay the staff directly, diners are used to adding 15-20% to their bill.

Several movements in the US, Canada, and elsewhere are aiming to reform the tipping system.

Chicago, for instance, is planning to eliminate the subminimum wages for tipped employees. This means that restaurants will be required to pay the $15.80 regular minimum wage to tipped staff instead of the $9.48 they currently receive (and expect tips to cover the difference). One fair wage bill is a similar initiative in New York.

Some restaurants in Canada have eliminated tipping. Larrys, a Montreal restaurant, has stopped tipping since 2021. According to the restaurant’s Instagram posts

There is a growing trend to reimagine the compensation of restaurant staff. These changes are not universally welcomed.

Restaurants would have to raise the wages of employees who receive tips, such as bartenders and servers if the legislation above passes. Many restaurateurs may be forced to raise prices and cut staff in order to handle higher labor costs.

As with any major change, it is important to be ready to adapt.

Impact of changing tipping laws in restaurants

Research shows that tipping has actually increased when people dine out. Lightspeed data between April and June 2023 showed that the median tip rate rose from 16.93% to 17.32% (a 2.3% rise).

Overall, tipping trends remain stable, regardless of the type of business. Customers continue to list around 3% higher at bars (19.25%), fine dining restaurants (19.9%), and casual restaurants (16.5%) than in casual restaurants.

This could change when new laws on tipping and minimum wages are implemented. The changes could have a positive or negative impact on your restaurant, depending on the way you operate.

The negative impact

The tipping reform could make running a restaurant more difficult, especially in the following areas.

Increased labor costs. Restaurant owners will have to pay their employees the minimum wage if the tipped wage is eliminated.

These changes can increase your labor costs significantly, especially if your business relies heavily on employees who are tipped. This additional expense may be necessary to pay employees a fair wage, but it can also strain your finances and force you to cut costs in other areas.

Staffing is reduced. Some restaurants, still on the subject of cost-cutting, may reduce their staff in order to manage increased wage costs.

While this may seem like a good short-term option, downsizing can have a negative impact if not done properly. Fewer employees can result in slower service, longer wait times and a possible decline in customer satisfaction.

The increased workload and longer hours can also affect morale and job satisfaction.

Menu prices are higher. Restaurants who want to offset rising costs without cutting staff or costs may increase menu prices. While customers will not have to tip, they are paying more for food and beverages up front.

This practice is a way to balance out the amount of tipping that diners would normally allocate. However, the higher prices of menus can discourage budget-conscious customers.

The impact of

The tipping landscape has changed, but it’s not all bad. Some restaurants may also find that not depending on tips to pay server wages can have positive results.

Consistent labor costs. You can predict labor costs better if you pay a standard salary, regardless of tip amounts. This eliminates the uncertainty associated with varying tip amounts so that you can better budget and plan.

You can also make better decisions about your business by being consistent with your staffing costs.

The morale of employees is improved. When your team knows they will receive a consistent wage regardless of the number of customers or their tipping habits, they are likely to feel more stable (and, therefore, have a higher level of job satisfaction). You will be able to attract better talent and reduce turnover.

Plus, motivated teams provide better service to customers and create a positive working environment.

Reduced administrative burden by not having to track or top up wages. Consistent wages minimize the amount of time you need to spend monitoring and adjusting worker pay according to tips. It means less work for your team and you, as well as a smoother process of payroll.

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