Switching from gratuity-free to tips at Little Egg, & our thinking behind it.

When I decided to open Little Egg, putting cooks and servers on equal financial footing was one of my main goals. As someone who has worked as a server but spent most of my career in the kitchen, the pay disparity between the two has always been to me one of the worst parts of the industry. The only way I could figure out for us to do this (legally) in New York was to have inclusive pricing, aka be gratuity-free. I couldn’t see any reasonable way, at least for a small full-service restaurant like Little Egg, to pay back of house workers a rate that matches what tipped service workers could make hourly (to be fair, nobody does this).

I wanted to try no-tipping for three reasons:

1. To achieve pay equity among all hourly employees, rather than set up the standard restaurant model of high-earning service workers and underpaid kitchen workers.

2. To try to shift the power dynamic between customers and servers so that servers don’t have to put up with the unfortunately common instances of disrespect and harassment that occur in restaurants just because a customer is going to play a part in deciding how much that server makes that day.

3. To provide a stable wage to servers, not one that would fluctuate between busy and slow services.

4. Also, I suspected that amidst the tip fatigue we were feeling from the rise in prompts for tips on all sorts of purchases during COVID that there might be some relief felt on the customer side to simply pay the amount that was placed in front of them for a change.

There is really no financial advantage to a restaurant to choose this model. Wages are higher, payroll taxes are higher, and raising prices to cover even some of those costs risks turning off customers who don’t consider the fact that they won’t have to pay 20% on top of the prices on the menu. For whatever reasons, we as consumers simply don’t think of tip as part of the price a restaurant is charging, which is interesting to me even today when every decent person understands that tipping 20% is not some personal choice or reward for good service but simply the expected and necessary cost of going out to eat. When we shift over to tipping at Little Egg this week, we’ll shave a dollar or two off our menu items, and I think people will feel “Oh nice, it’s a little less expensive.” Even though there may be some items that add up to more than they did when we were gratuity free, it is likely to feel like less because of the way we think about tips. (It’s probably worth mentioning here that we were facing a need to raise our prices before this change to help cover the huge amount of money credit card fees eat up from our sales, something NY has also recently made more difficult for businesses to offset.)

It’s true that you can’t say there’s a definite financial advantage to front of house workers for a place to go gratuity free. Yes, there’s much greater stability in pay that comes with a no-tipping model, but that comes at the expense of the potential big money days that can come along with a busy service or big tipper. We’re not the kind of restaurant that sees a lot of huge tips like at some fancier dinner restaurants, but we are built on busy weekend services and the bump in overall tips we can see on Saturday and Sunday can be really significant for our staff.

We’ve seen the challenges of attempting gratuity-free, as early gratuity-free spots like the the Tarlow group and USHG switched back to tipping because of both the restaurant-side financial challenges as well as dissatisfaction from many FOH workers. Dirt Candy, one of the real pioneers of gratuity-free model, is also one of the few places that has stuck with it, in part because of their fine-dining tasting-menu format and miraculously managed food costs that make it possible to absorb the higher labor costs the model incurs. It’s exciting to see it work, but also clear it’s not a model that fits every size.

On a legal level, the system is set up to encourage tipping and discourage any other model. Payroll taxes, for example, skyrocket when you increase hourly wages as opposed to laying low with tips, since tips are excluded from a business’s payroll tax. Even so, I wanted to give it a shot at Little Egg, and I’m glad we did. We were lucky, and I remain grateful, to find amazing employees who were game to give it a try with us, and whose service at Little Egg is a huge part of why folks come here to eat. And I’ve been surprised in the best way by the response from customers, who overall have been extremely receptive to and supportive of the gratuity-free system. It’s taken a good deal of education and explanation, but we’ve had surprisingly little pushback or frustration from customers, which makes me think there’s some future for the model to see more widespread adoption and success.

Over our first year, I’ve also been grateful for our servers, hosts, and baristas who decided to give this system a try, and who largely agree with the goals of going gratuity-free. They have also probed and pushed and questioned us for ways to make it better. The main downside is we can all see that we’re leaving money on the table for the front of house team, and as someone who wants everyone I work with to make as much money as they can, that sucks to see. Some customers still want to tip, and we’ve tried finding ways to let them know they *can* even though it’s not necessary or expected, but it’s too easy to step into confusing territory there. It’s also tough, though, to be letting people know that we pay everyone a higher hourly wage so they don’t have to tip, while knowing people don’t understand that that “higher” doesn’t mean high. These days $24 or $25/hr is still a struggle in NYC.

Ultimately I don’t want to stick to something principled if it’s not working for the actual people I’m working with in this restaurant, at this moment. It’s important to remember that there is such thing as a moral position, and then there’s its application. Do I think gratuity-free restaurants could be more equitable places, as well as more pleasant ones, than our current system? Yes. Is the adherence to that general belief worth foregoing another system that right now may work better for our specific situation? I don’t think so. 

Switching to tipping will mean we lose some leverage over some of the things that feel important to me, and I know to our team as well. There’s a lot we don’t love about it (rooted in slavery, pay inequity, power imbalance, we could go on.) It means our front of house workers will make more for their work (great!) than our kitchen workers will for theirs (not great). But everyone in the restaurant needs to make more money, and if we can start with our servers getting there — while not having the kitchen lose any ground and ultimately still making more than they might in most other restaurants — then it feels like there’s only a theoretical downside for our staff, and not an actual one.

There is a better way to do this (by better I mean a way that increases wages more than we can with gratuity-free; reaches similar pay equity among all employees; and is more naturally suited to our current hospitality culture so is easier to implement). Currently, and rightly, if you pay service workers the tipped minimum wage (in NY that’s $10.65/hr; nationally $2.13/hr), all tips must go only to those workers, which makes sense because a business is claiming those tips will make up the difference between the two wages, and often more.

However, in every state other than New York and Massachusetts, an approach advocated for by the group One Fair Wage is an option. If a restaurant pays all its workers at least the full hourly minimum wage (in NY, $16/hr; nationally $7.25/hr) as opposed to the tipped minimum wage, it is then allowed to share tips across all hourly staff. That means that you can set up hourly rates and tip sharing systems in a way that continue to allow customers to tip, and allows restaurants to ensure everyone is paid equally and equally shares the benefits of a busy service. When I mock up models of our finances for Little Egg, this lets servers make somewhere in between what they’ve made under gratuity free and the max of what they might make with tips (so, a benefit) and also means kitchen workers would likely make $5-6/hr more than they do now (another benefit!) and also is the best case scenario for our labor costs/dreams of profitability (and another benefit!!)

There seems to me to be no reason why this model shouldn’t be an option for restaurants in NY & MA. It offers better pay for servers than restaurants can afford to pau under gratuity-free models. It creates better pay for kitchen workers than under either regular tipped or non-tipping models. And it’s better for small business financial health than either tipping or non-tipping, at least for a place like ours. Plus, in the proposed New York law, restaurants retain the option to stick with the existing models over the five years the new system would be implemented. To currently have legislation in both the NYS Assembly and Senate with over 30% of each chamber signed on as cosponsors makes me wonder: why don’t we pass this? That’s something we’re going to be working on over the coming year, so we can achieve those goals of higher and more equitable pay, and would love to have our customers’ and fellow food-workers’ names signed on in support, if you’re willing to join us. If so, please sign our form here so we can share it with our representatives and hopefully push foodservice work in a more equitable direction.

All this is to say, I was excited for the possibilities a gratuity-free service offered us when we opened Little Egg. And after talking with our whole staff and deciding to make a change going into our second year, I’m happy now to shift to tipping because I know it’s going to mean more money (&, let’s remember, still not enough) for a big portion of our team. I know it’ll also be nice for customers who want to share their appreciation for the space our team creates at Little Egg. And I want to thank our team who along the way have agreed to try this out with us, who have shared feedback generously and understandingly about how it has and hasn’t worked, and who are always down to experiment and contribute to the ongoing evolution of this special little space.

See you for breakfast soon,

Evan