Failure to Launch: Canada’s No-Tipping Trend

By Barbara L. Vergetis Lundin, Assistant Editor

Restaurant Tipping

The long-held custom of tipping bar and restaurant servers is hotly debated across the United States. In Canada, the discussion surrounding the no-tipping concept is fierce, but the action is slow.

An American Express survey recently revealed that, in the United States, approximately 18 percent of restaurants have already implemented a no-tipping policy or system with nearly 30 percent planning to implement the same at some point in the near future.  Further, 27 percent of respondents have no plans for no tipping; 17 percent would jump on the bandwagon if their competitors did; and 10 percent are, as of yet, undecided.

“We have only anecdotal evidence of a handful of restaurants adopting a no-tipping model,” said James Rilett, Restaurants Canada Ontario vice president. “While there have been a lot of conversations, very few have taken the step and some of those have gone back to the old model. The no-tipping model is in very early stages in Canada.”

According to Rilett, the no-tipping model affords owners more control of the customer bill, but saddles them with additional costs in employee compensation.

To go tip-free, most restaurants either have to institute a service charge (or “service-included” charge — up to 23 percent in some cases) for customers or raise menu prices. The biggest trepidation: a potential mass exodus of customers and/or servers.

“Some customers would like to avoid the expectation of tipping and the percentage creep inherent in the system, but others do not like the loss of ability to recognize good service,” Rilett said.

Facing Inequity

Burgers

The inequity between back of house and front of house wages is significant in Canada. Cooks in Ontario make approximately $14 an hour (all taxable); servers earn approximately $27.90 an hour ($9.90 hourly wage plus $18 an hour in tips, of which only about 15 percent is likely to be claimed on taxes), according to joint research by Bruce McAdams, assistant professor at the school of Hospitality, Food & Tourism Management at the University of Guelph, and agricultural economist Mike von Massow.

A brand new eatery, the eclectic-American Ritual in Vancouver, is one of the few Canadian restaurants that have taken on a no-tipping system. Ritual is known as a “living wage employer,” and pays everyone from the dishwashers to the cooks to the servers the same living wage — about $21 an hour — as determined by the region’s living wage rate. According to Living Wage for Families, “the living wage is a bare-bones calculation that looks at the amount that a family of four needs to earn to meet their expenses,” including consideration like groceries, rent, and healthcare, as well as two weeks savings for each adult, but not including debt re-payments or savings for future plans.

CTV Vancouver News reports that servers appreciate the consistent pay and guests don’t mind the increase in menu prices — once they realize that the tip has been built in and after they are specifically told not to tip. If a tip is left on the table it goes to a local charity.

Although Ritual has realized the benefits of paying a living wage in the restaurant industry, it is the only food-service establishment that is currently a Living Wage Employer.

Also reported by CTV Vancouver News, Smoke ‘N Water Restaurant, “the Home of Live Music in Parksville,” was the first restaurant in Canada to test the waters, believing that eliminating tipping would differentiate them from the competition. It differentiated them alright, but not in a positive way. Three months later, the concept was abandoned due to negative consumer feedback and unhappy servers.

The situation facing Canadian restaurants is further convoluted by food prices that are predicted by researchers at the University of Guelph Food Institute to be two to four percent higher than the inflation rate throughout 2016. Further, the Canadian dollar is weak at around .73 cents on the U.S. dollar.

Indian Street Food Co.

Indian Food

Smaller restaurants are finding it easier to eliminate tipping and one Toronto restaurateur has found an interesting, and (so far) successful, solution.

The brainchild, which strives to change the wage discrepancy between front- and back-of-house staff, is that of Indian Street Food Co. owner Hemant Bhagwani.

The theory is simple. Bhagwani charges a 12 percent administration fee for the purpose of dividing among staff from the front of the house to the back. This is how the wages shake out: $25 to $30 an hour for servers and bartenders; $21 to $25 an hour for dishwashers and cooks. They also share 10 percent of the Indian Street Food Co.’s revenue.

Bhagwani is the first to admit that the system isn’t perfect, but there have been serious benefits. Most significantly, because they share in the profits, Bhagwani’s employees are more invested in the establishment’s success.