When The Informalist, The Lakely, Dive, The Fire House, and several other Eau Claire establishments owned or managed by Pablo Group reopened June 1, there was something new on the menu. It’s wasn’t a tasty new entree or an elaborate new cocktail: It was a statement that – contrary to longstanding American tradition – patrons at these businesses are no longer expected to tip.
For example, receipts from Eau Claire Downtown Coffee at the Lismore Hotel now include these words: “Tipping is not necessary because all employees at The Lismore are making a minimum of $16 per hour plus benefits. Any tips still go to the service team, but tipping is not expected.”
The establishments’ websites and menus offer a more detailed explanation, noting menu prices have risen because tips are no longer expected. “The hospitality and service industries are particularly susceptible to income instability,” the statement says. “Removing reliance on a flawed and archaic tipping structure has been shown to help reduce the economic exposure and risk to those workers. It is Pablo Group’s hope that our new structure improves the wage stability and creates better working conditions for employees throughout our organization.”
“The hospitality and service industries are particularly susceptible to income instability. Removing reliance on a flawed and archaic tipping structure has been shown to help reduce the economic exposure and risk to those workers.”
Part of a statement from the Pablo Group, about moving to a ‘no tip necessary’ model for customers, and a living wage for staff
As the restaurant industry continues to adjust to the COVID-19 pandemic and its aftermath, the Pablo Group establishments are among a handful of restaurants exploring whether making tipping optional and ensuring employees are compensated directly is a viable business model. Two Eau Claire restaurants owned by Lisa Aspenson – Mona Lisa’s and The Livery – also made tipping optional starting last year. Instead, they are adding an 18% service fee to guest checks, which they refer to as a “living wage fee.”
NO TIP NEEDED
A handful of Eau Claire restaurants are among the first in the state to tell customers they no longer need to tip servers. They include:
- The Informalist
- Racy D’Lene’s Coffee Lounge and The Nucleus
- The Fire House
- The Lakely at The Oxbow Hotel
- Mona Lisa’s
- The Livery
- Aware of others? email us at firstname.lastname@example.org.
While a small share of restaurants nationwide have done away with tipping – with mixed results – these restaurants in Eau Claire are likely among the first in the state to do so, the Wisconsin Restaurant Association says.
‘THIS IS WHAT IT COSTS’
Zach Halmstad, one of the founders of Pablo Group, said de-emphasizing tipping and raising wages have been a subject of company discussion for quite a while and became a strategic goal for 2021.
“The end goal that we got to is that there is no person in the organization that is not guaranteed $16 an hour,” said Halmstad, co-founder and former CEO of Jamf, a software firm now based in Minneapolis.
Instead of replacing tipping with a mandatory service fee, as some restaurants have, Halmstad said Pablo Group decided instead to raise prices roughly 20% to compensate for the expected decline in tips. “At the end of the day,” he said, “this is what it costs to make this plate of food or cup of coffee or drink.”
Because of this, patrons should feel “zero guilt” about not tipping, Halmstad said. However, they are still welcome to tip if they wish: This money is then pooled and distributed among the front-of-house staff, such as servers, and back-of-house staff, such as cooks and dishwashers.
For Halmstad, guaranteeing $16 an hour for all workers is an issue of equity and keeping up with the rising cost of living. “Philosophically,” he said, “20 years ago when I was working in fast food, I was making pretty dang close to what minimum wage is today. And nothing in our world costs the same as it did 20 years ago.”
(While the minimum wage in Wisconsin is $7.25 an hour – unchanged since 2009 – the minimum wage for tipped employees is just $2.33 a hour. However, if tips combined with the base wage provided by the employer don’t reach at least $7.25, the employer is required to pay the difference.)
Halmstad added that their dependence on tips puts workers in situations where they may tolerate harassment – including racist and sexist behavior – from patrons because speaking out against abuse could mean less money in their pockets.
As he has traveled in recent years, Halmstad has seen more restaurants around the country moving away from tipping, particularly in Minnesota. “There is a little bit of confusion when you first walk in – that it’s all included on the single line that I’m paying – but you adapt to that pretty quickly,” he said.
The Pablo Group’s policy applies to The Informalist, Dive, and ECDC, all of them inside the Lismore Hotel, as well as to the hotel’s banquet spaces; Racy D’Lene’s Coffee Lounge and The Nucleus; The Fire House; and The Lakely at The Oxbow Hotel. (Full disclosure: Among The Oxbow’s owners is Volume One publisher Nick Meyer.) At the same time, Pablo Group pledged to pay at least $16 an hour to all employees throughout the company. Those working more than 20 hours a week also receive benefits, including health care and a 401(k). Overall, about 240 Pablo Group workers are impacted, roughly 200 of them working in hospitality, food, and beverage service.
WORKERS, CUSTOMERS ADAPT
Among these Pablo Group employees is Sanoe Lindquist, who has been a server at The Informalist in downtown Eau Claire’s Lismore Hotel since October 2017. Lindquist was working full-time at the restaurant until it closed at the beginning of the pandemic. She returned to work when it reopened for curbside service last year, and is back to waiting tables now that the restaurant has returned to full-service.
Lindquist acknowledges she was skeptical about the no-tip-necessary approach when Pablo Group’s management first began discussing the policy. Without regular tips, she worried about a cap being put on her wages.
“Although we were getting paid a lower hourly wage” under the previous system, she said, “sometimes you get those really good days.”
However, Lindquist appreciated that management was upfront about discussing the change, and brought together front-of-house and back-of-house employees from its various restaurants to talk about the policy in focus groups. “All in all, I feel way more positive about it now than I did in the beginning,” she said. Now that the restaurant has reopened, she’s anticipating have a more stable income that evens out the peaks and valleys that come with relying primarily on tips.
Furthermore, she said, patrons seem to be adjusting to the change. “The feedback I’ve gotten has been very positive, and (customers) are open to it,” she said, adding, “They don’t feel like it’s their job to be subsidizing our income anymore.”
Finally, dividing tips among all workers – whether their serving customers or working in the kitchen – has benefits, Lindquist added. “That promotes a culture of teamwork in our restaurant, more than it did before.”
Rita Dorsey, director of experiences for the Pablo Group, acknowledges that from employees’ perspectives, there are pluses and minuses to making tipping optional. “Everybody’s favorite aspect of tipping is being able to walk out of a great shift with cash,” Dorsey said. Servers, particularly experienced servers, feel they can control their level of tips through the service they offer.
However, she said, servers at the Pablo Group’s establishments have been supportive of the new policy. “The positive for them is the ability to have wage stability,” Dorsey said: Even if inclement weather keeps customers away or a patron stiffs them on a tip, Pablo Group employees are now guaranteed at least $16 an hour.
The change in policy is not without risk. Halmstad acknowledges the concern that it could place a ceiling on employees’ wages, since they can no longer directly pocket big tips on busy nights. On the other hand, when business is slow and revenue is low, the policy also shifts the primary burden of paying workers back to the restaurant owners, who are likely operating at deep losses on those days, which may or may not be made up on the busy ones. In addition, it could be a turn-off for customers, either because they balk at higher menu prices or for psychological reasons: Some diners like to show off by leaving big tips, and studies have found that tipping improves the perceived and actual quality of service in restaurants.
However, so far feedback from customers has been positive, Dorsey said. For patrons accustomed to tipping about 20%, “I don’t think their experience is going to cost them much more,” she said.
“I hope they understand that this is a deeply flawed system that has been deeply flawed for a long time,” Dorsey added.
Over the past decade, restaurateurs on both coasts have tried – with mixed success – to address such perceived flaws by doing away with tipping: Some, like Mona Lisa’s, have added a separate service charge. Others, like the Pablo Group’s restaurants, have increased menu prices.
Like those in Eau Claire, restaurateurs around the country have said they want to ensure that workers’ pay is higher, more stable, and more equitable. Some note that America’s tipping tradition became common following the Civil War, when formerly enslaved people worked for tips instead of wages.
Among those in the restaurant industry who oppose tipping is New York City restaurateur Amanda Cohen, whose restaurants are tip-free. “Before the pandemic, tipping was baked into the industry and we all inherited it,” she told Eater.com in a comprehensive article about tipping published last September. “Right now, no one wants to go back and consciously, purposefully inflict its inequities on their staff.”
“The end of tipping has been heralded before, and not all that long ago,” journalist Kathryn Campo Bowen wrote in that Eater.com article. “In 2015, acclaimed restaurateur Danny Meyer announced that he would eliminate gratuities throughout his sprawling Union Square Hospitality Group, hoping to narrow the stark income disparity between servers, who received tips, and cooks, who did not.”
Meyer’s decision to go-gratuity free was followed by similar moves among restaurateurs elsewhere in New York as well as in the San Francisco Bay Area. However, within a few years, the trend shifted in the other direction, with many of the eateries returning to a tipped model. Even Meyer’s restaurants reinstated tipping when they reopened in mid-2020 during the pandemic.
The problem, observers said, has been two-fold. First, diners may resist higher prices. “People are happy to pay $25 for a pizza if it’s $20 plus tip,” a Brooklyn restaurateur told Eater, “but if the menu reads $25 for a pizza you’re looked at as ripping people off, even if it’s the right price for the cost of getting the food to the table.”
Research bears this out: An academic study published in 2018 by Michael Lynn, a Cornell University professor, found that low- and mid-priced restaurants that eliminate tipping experience a decline in online ratings by customers.
In addition, many experienced servers preferred collecting big tips during busy shifts to making a guaranteed hourly wage. Meyer said in 2018 that 30 to 40% of his experienced front-of-house staff left after his restaurants got rid of gratuities.
However, certain restaurants have managed to make a no-tipping model work. Some have done it with an add-on charge, making it clear to customers that the service fee replaces a customary tip. Others have raised menu prices, but based pay – both for servers and kitchen staff – on a percentage of sales, which means they all benefit when the restaurant is busy.
Petite León in Minneapolis took the 20% service fee approach. “It’s kind of a big idea but I think that we’ve done the math, and it will succeed,” chef and co-owner Jorge Guzman told Food & Wine magazine recently.
‘REDISTRIBUTING THE WEALTH’
Aspenson – who opened Mona Lisa’s on Water Street 27 years ago – said she has long considered changing the tipping model at her establishments. The disruptions caused by COVID-19 provided the opportunity – although at the time, Aspenson simply wanted to ensure that her employees were getting paid. Shortly after the pandemic began, when they were serving customers through carry-out only, Mona Lisa’s and The Livery adopted an 18% service fee in lieu of tips. This provided a way to give tip-dependent servers – who instead of waiting tables were now taking orders over the phone and online, boxing them, and carrying them to customers’ cars – a stable income.
The policy was retained when the restaurants reopened for limited sit-down dining in June 2020. Aspenson had calculated that, even if the restaurant operated at only 50% capacity, the 18% service fee would allow employees to receive a base pay considerably higher than the minimum wage. And because employers were now paid more than the $7.25 minimum wage, tip pooling would be allowed, with any optional tips received being spread among all staff.
“In our model, we don’t need the government to come in here and tell us that we need a $15 minimum wage, because nobody makes less than $15,” Aspenson said. “We’ve basically taken and redistributed the wealth of the restaurant” – money that once would have gone to a few servers via large tips was now shared by everyone.
“We’ve lost some staff over it. I actually fired a couple of people over it because they stole tips from their coworkers. They weren’t stealing from me, they were stealing from their coworkers.”
owner of Mona Lisa’s and The Livery
And while this model was embraced by employees early in the pandemic when there were few – if any – tables to wait on, some opinions shifted as the restaurant business began to rebound. Some servers returned to a previously held sense of ownership of tip money left on their tables, Aspenson said. Their attitude, she said, amounted to “I’m so cute, or I’m so great, and I did such a good job, that (tip is) for me because I’ve been entitled in the past.”
“We’ve lost some staff over it,” Aspenson continued. “I actually fired a couple of people over it because they stole tips from their coworkers. They weren’t stealing from me, they were stealing from their coworkers.”
In particular, Aspenson said, there were problems at The Livery, where she contends the restaurant’s management wasn’t supportive of the new no-tip-necessary system, and the wrong messages were given to customers. “So I chose to just say ‘OK, you know what, we’re going to just take a break for a while,’ ” she said. The restaurant closed temporarily, and is now open limited hours. “I’m slowly rebuilding a team that works together,” Aspenson said.
On the whole, however, she said customers have been supportive of the new policy, and most leave a tip on top of the automatic fee. “We’ve got more positive feedback than negative feedback by far,” she said. “It’s a European system: Here it is in the price.”
It’s no secret that the restaurant industry was dealt a blow because of the pandemic – a blow that many businesses haven’t (and won’t) recover from.
Susan Quam, executive vice president of the Wisconsin Restaurant Association, said that restaurants were already facing labor shortages and thin profit margins before COVID-19. While it’s too early to determine how many Wisconsin restaurants will never recover from the pandemic, Quam said national data indicates 10-15% of U.S. restaurants have closed their doors, most of them permanently.
According to a WRA survey released in late April, restaurant sales in March were still 21% below pre-pandemic levels, and 79% of Wisconsin restaurant operators say their profit margins are lower than they were before COVID-19.
And while business may be picking up now, the restaurant association is concerned what will happen in the near future – if, for instance, there’s a wintertime surge in COVID-19 cases. Another dip in business would be challenging for an industry that experienced huge revenue losses and took on more debt during the past year, Quam said.
RESTAURANTS & TIPPING BY THE NUMBERS
Estimated amount of tips left annually in the United States, about three-quarters of which are in restaurants or other food-related jobs.
Hourly minimum wage for tipped employees in Wisconsin. (If these employees’ tips don’t bring them up to $7.25 an hour, the employer is responsible for paying the difference.)
Share of U.S. restaurants that remained closed because of the pandemic as of April 2021. That’s about 90,000 restaurants nationwide.
Share of Wisconsin restaurant operators who say their staffing levels are below where they were before the pandemic.
Share of Wisconsin restaurant operators who say they have job openings that are difficult to fill.
Share of Wisconsin restaurant operators who say their profit margins are lower than they were before the pandemic.
However, that’s not restaurants’ only problem. “What we’re suffering from right now in our industry – which was a problem before the pandemic, but it’s so much worse now – is a shortage of workers,” Quam said. Pandemic-induced shutdowns put many restaurant workers on unemployment rolls. While some have continued to collect benefits and have remained unemployed (or underemployed), others found jobs in different industries, Quam said. Still other restaurant workers have had a hard time finding child care, which has made it difficult to re-enter the workforce, she added. Meanwhile, restrictions on temporary immigration visas have kept restaurants (and other parts of the food system) from meeting seasonal staffing needs, Quam said.
“The hard part is, in Wisconsin, we’re a very price-conscious state. No one wants to see their menu prices increase.”
executive vice president of the Wisconsin Restaurant Association
According to the April survey, 83% of Wisconsin restaurateurs who responded said their present staffing level is lower than it would be without the pandemic, and 88% said “recruiting and retaining employees will likely be more difficult after the pandemic is over than it was before the pandemic started.”
While Quam has heard that some Wisconsin restaurants have pondered switching to a no-tip-necessary model, the Eau Claire restaurants are the first she is aware of that actually have done so. She’s heard the approach has had mixed results in other parts of the country.
“Many times, front-of-the-house employees who earn tips are resistant to it,” Quam said. This can create problems when experienced servers leave no-tip establishments to find jobs at other restaurants that retain the traditional tipping model.
While Quam has heard consumers say they would prefer not to have to calculate a tip – or worry if they are tipping adequately – there’s a difference between thinking a new system would work better and actually having it succeed. Without relying on tips to supplement employees’ pay, menu prices have to go up – a fact exacerbated by rising food prices. “The hard part is, in Wisconsin, we’re a very price-conscious state,” Quam said. “No one wants to see their menu prices increase.”
Thomas Kemp, a professor of economics at UW-Eau Claire, said it’s hard to predict the impact of the local restaurants’ policy changes and how customers and servers will adapt to them. However, he said, “On a personal level, I think that’s great. I think it provides more clarity in pricing, and that’s a good thing.” Tipping, he added, is uncommon in many countries around the world, while built-in service charges are more typical.
One potential downside of the new policy, Kemp said, is that servers may be less likely to come to work on short notice when a restaurant is busy – for instance, on a Friday night – because they will make the same amount of money they would on a quiet night with few customers. This may prompt restaurants to offer higher hourly wages during busy periods, he said.
Ultimately, veteran restaurateur Aspenson believes that moving beyond tipping is a way to bring stability to the restaurant industry. Even before COVID-19, finding and keeping staff was a challenge. “If we don’t have something change after that to make sure that we have people that want to stay in this industry ... then I think the industry is really in trouble,” she said.
“Frankly, if it doesn’t work,” Aspenson said of moving away from tipping, “I will be done and I will close. … It’s just simply what I believe in. I don’t believe in the inequality of the climate that really festered for everybody.”