I've worked for tips for most of my life --- for over 30 years --- at many places and in many capacities --- in restaurants, bars, hotels and casinos --- in California, New York, Philadelphia and Las Vegas. So when I heard that a restaurant was banning tips, it's only natural that I would have an opinion on this matter.
Think Progress has an article (as does the PriceHike, Gawker and TheFW) about an up-scale NYC Suchi restaurant that has banned tips for its employees. According to a co-owner of the Sushi Yasuda, Scott Rosenberg claims the restaurant charges an extra 15% for their food, which he says goes to the servers in the form of wages and benefits --- such as paid vacations and sick leave. He also says that the price increase actually ends up costing customers roughly the same amount as if they were to tip.
But what do his employees think about this? Theoretically, this plan could help compensate the employees at Sushi Yasuda for those customers who might under-tip or don't tip at all; but it could also, on some occasions, under pay them when others might leave much generous tips.
Although, one advantage would be that the employees would no longer have to report their tips to the IRS for tax purposes, and they would (hopefully) have all their payroll taxes deducted and reported by their employer.
Tipped employees around the nation are constantly under threat of an IRS audit to comply with an ironically named "Voluntary Compliance Agreement", when employers deduct taxes on the calculated tips that their employees earn from their hourly wages. But in some cases, employees receive ZERO in their paychecks. (Although, to the best of my knowledge, no one has ever had a "negative paycheck", but they may owe taxes at the end of the year according to their annual adjusted gross income --- such as if they have other earnings from other sources.
The employees at Sushi Yasuda (and others), before agreeing to a ban on tips, they might have wanted to keep a careful record of all their sales over a period of time --- and to determine average hourly wages as compared to their average tip earnings.
In the example of the Sushi Yasuda dinner receipt, it shows that 15% of the pretax total of $223 would be $39 --- so assuming the diners spent 2 leisurely hours being served --- are their employees earning $19.50 a hour before taxes?
And would it matter how many customers the employees served (or the total sales that each server generated) over the course of the employees' shift? Because in 2013, $19.50 a hour is still just slightly shy of what a real "living wage" might be in the U.S. (especially in a city like New York). And are the Sushi Yasuda employees part-time workers, or are they guaranteed a 40-hour week? There are too many unknown factors.
Does anyone know what a server at Sushi Yasuda earns an hour and what exactly these benefits are --- and how much they cost the employer? 40 years ago in 1973, as a high school drop out, I was earning $7.50 an hour as an unskilled union worker (a welder's helper) in a Massachusetts sheet metal factory. It was one of my very first full-time jobs, and was before I decided to start working in the hospitality industry.
Indexed for inflation, today $7.50 an hour would be $39.22 an hour --- but according the Bureau of Labor Statistics, a welder's median wage today is only $17.04 an hour --- and that's why I think that $17 an hour should be the very minimum wage. If the employees at Sushi Yasuda were earning $19.50 a hour plus benefits, I might agree that this might be a fair deal (but barely, considering the cost of living in New York).
Erika Grant at Food Beast thinks the employees at Sushi Yasuda are getting a good deal and writes, "Don’t worry though, it’s not a scheme to deprive servers of their hard-earned cash." She doesn't say how much the Sushi Yasuda employees were earning an hour, so how could she possibly come to that conclusion? So I strongly disagree her. But before I get into that, let's first explore a short history and the meaning of a "tip".
The origin of "gratuity" as in "graciousness" is from Medieval Latin gratuitas or "gift" --- "free or freely given" (see gratuitous). Meaning "money given for favor or services" which was first attested to in the 1500s. Defined by Merrian-Webster a gratuity is "something given voluntarily or beyond obligation, usually for some service." Other definitions are: "A gift of money over and above payment due for service" or "a gift or reward, usually of money for services rendered."
Therefore, a tip is a "gratuity" for a service, paid by the customer to an employee --- who is typically a food server, bartender, cocktail server or others in the food and beverage or hospitality industries --- but may also include others, such as car wash attendants, mechanics and many others who might also give a service which is beyond their regular or expected duties.
Whereas a "wage" (or salary) is a fixed regular payment which is paid by an employer to a worker for an expected regular duty, and these duties are usually defined in a job description and are mutually agreed on by both parties, both the employer and the employee (just as with any written contract or formal labor agreement).
One of the meanings of the word "tip", some say, means "To Insure Promptness" --- a tip being an incentive and/or reward for either good service, or for going beyond the usual expected service. If there are only hourly wages, no one might be persuaded to "rise above the call of duty" and just "do their job". How often to we tip someone for just doing their job?
Federal law permits employers to include tip wages towards satisfying the difference between employees' hourly wage and minimum wage. A tip pool cannot be allocated to employees who do not customarily and regularly receive tips. These non-eligible employees might include dishwashers, cooks, chefs, and janitors. But service bartenders might also be tipped by cocktail servers; just as a barback might be tipped by a bartender; or a busboy is tipped by a waiter --- and even customers have been known to tip a chef.
But I don't think any business establishment (restaurant, bar, hotel, casino, etc.) should ban tips in exchange for a higher hourly wage or other benefits --- or be forced into any type of tip-sharing plan. The employees are trading off one potential benefit for another.
Why not pay a fair base wage with benefits AND allow them to keep the incentive to also give extraordinary service --- "beyond what is expected or anticipated"? As a customer, we might sometimes want someone to go that extra mile for us when circumstances are warranted. When someone can work for a tip, those who persist, try harder, and excel should also be rewarded for their extra efforts, whereas the slackers should not; nor should they share in the efforts of others in a tip-sharing plan.
For 5 years Steve Wynn's tip-pooling program at his Las Vegas casinos forced card dealers to share gratuities with their supervisors (to save him wages paid to managers), until a state District Court judge had ruled in 2011 that it violated Nevada law. Under Nevada law, employers can't force workers to share tips with supervisors or employees in other kinds of jobs.
According to some employees I've spoken with, Steve Wynn also once wanted to ban all tipping to his bartenders and cocktail servers as well, thinking that the extra money would go into his slot machines --- or to the house on his black jack and craps tables. Thanks only to the employees' labor unions, this never happened.
There were other American companies dealing with lawsuits over tip sharing. A U.S. District Court in Minnesota approved a $1.25 million settlement between OSI Restaurant Partners LLC (parent of the Outback Steakhouse chain, which had about 1,200 Outback Steakhouse servers in Minnesota). In a lawsuit, the servers alleged that Outback unlawfully required them to share tips with bus staff and hosts (Although, as I have personally experienced, this is usually customary, but never mandatory). The class action lawsuit alleged tip-sharing violated a Minnesota Fair Labor Standards Act prohibition on employer-run and mandated tip pools. Starbucks was also defending its policy against lawsuits in Massachusetts and Texas.
Employees of the swanky nightclubs inside some of the top-shelf casinos in Las Vegas were also the subject of tip-sharing plans. These employees are the highest tipped workers on the planet Earth (with the exception of those that work for a few "high class escort services"). A Baby Boomer by the name of Robert Thomas was just one of thousands of bartenders working on the Las Vegas Strip, who at 53, also had the distinction of being one of the oldest bartenders at a swanky casino nightclub. (He was also one of the few to win a settlement from a casino in a federal age discrimination case.)
Many employers still refuse to pay the minimum wage, and use "independent contractors" to subvert the law, and according to the Department of Labor, have even scammed the mentally disabled on wages. An Atlantic City casino on the Jersey shore was imposing "term limits" on its frontline employees, such as card dealers, bartenders and cocktail servers to subvert age discrimination laws. When hiring in Las Vegas, casino owners often use the "bona fide occupational qualifications" clause to subvert the Civil Rights Act, which also bans age discrimination to hire younger, and/or more "attractive" people. A cocktail server job listed on their websites was hyphenated to read "server-model".
Most frontline employees in the food and beverage industry (e.g. bartenders, cocktail servers, food servers, room service waiters, bus persons, etc.) are considered "tipped employees" --- and unless they belong to a hotel or other labor union --- earn much less per hour where the state law sets their own minimum wage rate for this class of worker. 14 states currently sets this at only $2.13 an hour. The last proposed minimum wage bill, besides raising the minimum wage from $7.25 to $10.10 and indexing it for inflation, would also raise the hourly wages for tipped employees as well. But with so many Republicans in the House and Senate, that bill or a similar bill will most likely never pass.
Again: A "tip" is a "gift" of money, over and above payment due for service --- a reward, usually of money, for services rendered --- even though a tipped employee's "gift" is also taxed by the IRS. By contrast, bonuses and stock awards paid as "incentives", and other compensation paid to Wall Street bankers, CEOs, and hedge fund mangers might be taxed at a much lower rate for capital gains. Our politicians receive campaign "gifts" all the time, sometimes in the form of campaign contributions --- "as an incentive or reward for good service, or for going beyond the usual expected service" --- to do such things as to write tax laws that are most favorable to large corporations and their CEOs.
Also, there is a new and more favorable estate tax, gift tax and generation-skipping transfer tax with exemptions for the top 1% that have gone into effect as of 2013.
Heirs and heiresses to family fortunes (e.g. Kim Kardashian, Paris Hilton, etc.) can get their first $10.5 million exempted from any federal income tax. According to Forbes, as of 2013 (under the federal estate tax laws) a husband and wife can each transfer up to $5.25 million tax-free to an heir during life (as a gift) or at death. The IRS calls this the basic exclusion amount and it is adjusted for inflation. The generation-skipping transfer tax exemption has also been indexed for inflation, just like Congressional salaries --- but unlike the one proposed for Social Security benefits. And tips (gifts) for working people are taxed 100% as regular wages.
I'll close with a short story about a tip I once received
Before being laid off as a bartender in Las Vegas almost 5 years ago, I was working one Friday night at a lounge bar where a LIVE band was performing. It was, as usual, a very busy night. Not only was every seat at my bar filled, but I was swamped three deep with people from the tables coming to the bar for drinks.
Evidently, the cocktail waitresses and the service bartender in the back of the house couldn't keep up, but I wasn't complaining --- my rhythm was honed to perfection, and I was making good money (tips), if only just because of the sheer volume, and not from any extraordinary service that I was giving my customers.
One man approached the bar and ordered a drink from me. Afterwards I handed him his change and then he reached into his pocket to hand me something. It was a coin, which judging by its size and shape, at first I thought it was a gaming token that was used in the casino's slot machines. Casino employees are often tipped in this way, both by customers, and to each other.
As the man quickly disappeared into the crowd, upon further inspection (and because of the weight of the coin), I discovered that it was a gold South African Krugerrand. Imagine my surprise.
Many high rollers in Las Vegas, or just lucky gamblers, would sometimes leave very generous tips, so I wasn't THAT surprised. I remember one night when a group of four was sitting at my bar late on a very quiet night when I was working a graveyard shift. One man tipped me $100 for every round of drinks I served his party.
So on that particular night when I was working in the lounge, I just assumed the man meant to tip me with a Krugerrand. And because of its value, rather than put it into my tip jar, I immediately placed it my front pocket.
About 15 minutes later, the man returned to the bar and asked me if I was the bartender who had just served him. I realized then that he was a little intoxicated, and I said yes, I was. He said he had made a mistake, and had given me a Krugerrand instead of what he thought had been a gaming token. So I reached into my pocket and handed it back to him. Needless to say, I was just slightly disappointed. In return, the man handed me a $10 bill as sort of a "finder's fee", for which I was very grateful. It was much more than the one dollar I had previously hoped for when first serving him his drink. And it was also far much more than if employees were banned from receiving any tips at all.
In Conclusion
Whenever you think an employer is doing you a "favor", always remember, they never do. Banning tips to pay a higher hourly wage? The way I see it, there's gotta be an angle in there somewhere. These corporations will always do everything they possibly can, to not only extract everything they can from their customers, but also from their employees. That's just the American way of doing business. To believe otherwise is to believe that businesses don't spend millions of dollars every year to constantly lobby Congress to weaken consumer protection and labor laws, or to eliminate labor unions.