Skipping the tip: Why some restaurants and businesses are nixing gratuities | CU Boulder Today

It’s a familiar restaurant experience: The menu lists fixed prices, but the bill is another story. After the tip plus various fees and surcharges, the grand total can be surprising to a casual diner.

According to the National Restaurant Association’s latest Business Conditions Survey released at the end of 2022, 15% of 3,000 restaurant operators surveyed nationwide were adding fees or surcharges to customer checks to offset higher food, labor and energy costs.

Meanwhile, some high-profile restaurants are moving in the other direction, bucking service-industry convention and eliminating tipping altogether, not to mention surcharges.

The iconic Lakewood, Colorado, restaurant Casa Bonita, famously revamped by “South Park” creators and former CU Boulder students Trey Parker and Matt Stone, reopened June 23 with cliff divers, sopapillas, live mariachi music—and no tips.Instead, the restaurant is charging a flat rate for meals via tickets, which cost $39.99 for adults and $24.99 for kids ages 3–12 (kids under 3 eat free). In shifting to a no-tipping model, the restaurant raised the staff’s base pay.

Casa Bonita joins other restaurants nationwide that have adopted similar no-tipping models, including Lazy Betty in Atlanta and Zazie in San Francisco.

That’s great news to CU Boulder economics Professor Jeff Zax, who believes tipping isn’t a rational way of compensating employees. Zax sat down with CU Boulder Today to discuss the changes afoot with tipping nationwide.

What is your take on restaurants pivoting away from traditional tipping?

Tipping is the dumbest form of compensation there is. I think the economy would be healthier without it altogether, and I’m very encouraged to see that at least some businesspeople are coming to understand that. I’m glad Casa Bonita is doing it, and I wish all restaurants did. 

There is a fundamental deceit at the core of the tipping enterprise from the perspective of the customer. There’s this idea that maybe it’s a gratuity, which means that it’s sort of a gift and maybe I don’t need to do it. But from the perspective of the worker, it’s a necessity. No one ever said, “I don’t care if I don’t get tips.” Workers think of it as part of their compensation. This discrepancy, this incongruity, creates an inefficiency in the way markets work. Markets work best when everyone knows what the prices are. And with tipping, nobody really knows. 

How do you view tipping from a worker’s perspective?

There’s no other labor market environment where the worker says, “I’m going to do the job you’ve asked me to do, and you can decide whatever you want to pay me when it’s over.” It doesn’t make any sense for the workers who have traditionally relied on tips—like servicepeople in restaurants—to be put in that position. 

Tipping imposes all sorts of uncertainty on the waitstaff. They never know how they are going to get paid, and I don’t see why anyone should have to work under those conditions. It makes much more sense to say to waitstaff, “Here is your wage, that’s what you get paid every hour,” then turn around to the restaurant customers and say, “Here’s the true cost of your meal.” Remove the uncertainty.

From a consumer perspective, how do you navigate today’s tipping pressures and expectations?

Obviously, this is not an enormous issue in the way the economy works, but to the extent that it exists, it is an anomaly and there’s an incoherence associated with it. Who do you tip? Most people expect that they’ll tip waitstaff at restaurants, but if you get takeout from a restaurant, why would you tip there? You’re not getting the same kind of service.

You may tip your hairdresser, but do you tip your physical therapist? Probably not, but why? The inability to define clearly who should be paid in this way and who shouldn’t is another inefficiency in the way these labor markets work.

What do you think about the tipping asks in other parts of daily life?

More and more retail outlets have electronic payment systems where you insert your credit card and they automatically say, “Do you want to add a tip?” Often that occurs even in contexts where historically it wouldn’t have been common.

There may even be an upsurge in tipping in industries where we previously haven’t seen it just because it’s easy to ask—and when someone is asked, they don’t want to look cheap, and they’re concerned about who’s paying attention and so they might tip even if they’re uncomfortable with the idea. 

Do you feel similarly about service charges and other fees that show up on restaurant checks?

What’s important is transparency. Everyone, both customers and workers, should know in advance what will be paid. Then everyone can make well-informed decisions. If restaurant billing is getting more explicit about the costs of the various components of the services that restaurants provide, that’s good.

Do you think there will come a day in the U.S. when tipping isn’t the norm in the service industry? 

I certainly hope so! But I don’t expect it. The practice has been surprisingly persistent.