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No More Tips: What It Means for the FSR Industry

Restaurateur Danny Meyer (the Shake Shack guy) is saying goodbye to tips at NYC-based Union Square Hospitality Group, which operates more than a dozen full-service restaurants. It’s a huge shift from what has become the norm in American culture, so, of course, people are talking about it.

The National Restaurant Association (NRA) told CBSNews.com “The move towards a non-tipped environment is a new and somewhat small concept with only a handful of restaurants testing it nationwide. We’ve found the practice of tipping has traditionally attracted millions of employees to our industry and still has strong support from American diners.”

If that’s the case — that tipping helps attract employees — what will happen if tips are eliminated?

One source raised a good question in an interview with Today.com:

“…how do you retain top serving talent at a high-end restaurant? Some servers can make $100,000 per year. If they want to keep wages consistent, restaurants will have to pay that and figure out how much to raise their prices to compensate. It will definitely take a little while for restaurant owners to calibrate what to pay.”

Do the math: $100,000 a year equates to almost $50/hour. But if restaurants eliminate tipping and implement a $15/hour minimum wage across the board, that’s a significant paycut for top-performing servers. Not exactly an attractive career opportunity. Restaurant owners could expect top talent to flee. That’s not to say some diners won’t leave a little extra cash, but if it’s not required (or they’re like me and rarely carry cash), servers still can expect wages to drop.

What do you think? Is doing away with tips a good idea?