How Two Restaurants are Thriving on a Gratuity-Free, Profit-Sharing Model [Podcast]

By: Dahlia Snaiderman

11 Minute Read

May 21, 2019

Waiter outside

Danny Meyer, who heads up the famously gratuity-free Union Square Hospitality Group, admitted in an interview with Forbes that it takes about a year to get the math right when you eliminate tips. That’s reason enough to scare many small businesses out of even considering trying a new compensation structure. His restaurants have stayed the course and stuck to the gratuity-free (plus benefits) model, but not every restaurant that's tried it has been able to make it work

David Chang's Momofuku Nishi tried a hospitality-included model for five months, and Thad Vogler, of James Beard Award-winning restaurant Bar Agricole, in San Francisco, tried it for nine months, but said, “As much as I agree and I believe in the principle, it was too hard.” 

However, on two opposite corners of the U.S., two neighborhood restaurants are currently thriving on the gratuity-free, profit-sharing model. In the newest episode of The Garnish, we got to hear all about what it's like to work at Juliet, in Somerville, MA, and at barcito, in Los Angeles, CA

We learned about the challenges of implementing this model as well as the joys of gratuity-free work, including stable income and benefits, the motivation of profit-sharing, and a smaller front- and back-of-house divide.

Useful Definitions

  • Gratuity-free: A system where servers do not accept tips and are instead paid an hourly living wage, often plus benefits. 

  • Profit sharing: A system where staff are given bonuses when the business does well. This method allows for a similar type of reward as tips, where if a person works hard, they are compensated extra. 

  • Open-book management: A system where management shares the finances of a business with its employees so that they can see how their work contributes to increases in revenue. 

How it Works at Juliet and Barcito

At Juliet, in Somerville, MA, “Everyone starts with a living-wage base pay. Right now the current base is $15. And then from there, we also do profit sharing. Everyone is given a look into the business, [so] we're really aware of the amount of money the restaurant is making,” explains general manager Katie Rosengren. “From there, everyone gets a little bit of the profit that we make in the restaurant. It's every single person who works here, from dishwasher all the way up to the owners, because everyone is contributing to it.” 

Because of this system, there’s virtually no front- and back-of-house divide at Juliet. 

Rosengren also says that if people still tip (after having heard the explanation of why the restaurant is gratuity-free), the restaurant puts the money toward staff development or staff parties.  

Over at barcito, in LA, “It's a hospitality-included, no-tipping model. We have basically baked the cost of doing business into our menu prices,” says owner Andrea Borgen. “We revenue share with our front-of-house staff, so it's based on week-to-week sales as opposed to night-to-night tips.” 

Lauren Leland, a bartender at barcito, explains that the revenue pot is split according to number of hours worked, which means there’s no need to fight over busy shifts every week. “If I'm working different shifts than the other bartender, but we work the same amount of hours, we're seeing the same amount of money. So it feels a little more fair.”

Stability in Pay and Lifestyle

At both Juliet and Barcito, a slow shift doesn’t mean a small paycheck. Both restaurants also offer health insurance, which is rare for the restaurant industry

“A priority for me is to ensure my staff is getting a certain number of hours per week and have really predictable take-home pay,” explains Borgen. To achieve this, she doesn’t cut servers on slow days but rather gives them cleaning projects to do. 

On slow days at Juliet, “We always have the option of whether or not we want the night off. We're never told we're going to get cut,” says Sam Mangino, a server at Juliet. “The option is we're going to do a lot of cleaning, or one of [us] can take the night off. And there are some days where I'm like, ‘I'm so tired. I do want this night off,' so at least if I'm not getting a day's worth of pay, I get to make that choice on my own.” 

Rosengren is the mother of a young son. Not only was her job at Juliet held for her while she went on maternity leave but her income is stable without having to work every weekend. 

“There are a lot of moms who work in restaurants that tip –  they are amazing human beings, and I 100% support anybody who does this for a living and has a child because it is so hard. But having a gratuity-free model allows it so that I don't have to work every Friday and Saturday night so that I can afford to feed my child or house my child,” said Rosengren. “It gives me a lot of flexibility, and it also keeps those people in the industry who are really talented, who are really capable but just can't make ends meet by working a Tuesday lunch.”

The Challenges of Going No-Tip

The switch from the standard tipping model to a no-gratuity model requires a lot of calculations; if you plan to do it, you’ll need to leverage as much sales data as you can to inform how you’ll shuffle around money. Typically, restaurants increase menu prices to be able to cover minimum wage (or higher) for all workers. This is a risk, because loyal customers may experience some sticker shock. According to Borgen from barcito: 

“We anticipated the sticker-shock risk, which I think certainly manifests itself in two kinds of different ways. Either guests see our menu prices, balk, and and don't walk in at all, or they come in and their ordering behavior changes based on the prices, so they go for the lower-ticket items, and check averages drop and you're not meeting what you need in order to sustain your business. I've realized that there is sort of a third risk that we certainly felt, [which] has to do with value perception. The example that I use a lot is this short rib dish… it used to be $13 and then it increased to $16, and that three-dollar difference made such a change in the way people reacted to that dish. Before, they were thrilled and they loved it and it was such a great deal. And once it was $16, it was too small, or too bland – nothing about it changed except the price tag.”

At Juliet, occasionally a guest will say they charge too much, but Rosengren says they often just aren’t thinking ahead to the fact that they really don’t have to tip at the end. 

“There are a lot of places around that will charge $15 for a brunch plate and then you tip on top of that. So if we charge you $15 for a brunch plate and you don't tip on top of it, we're actually cheaper than that other place.”

The Downfalls of the Tipping System

Why bother shaking up the system that we’ve been running on for centuries? 

Firstly, studies have shown that it’s rife with discrimination: Black servers receive smaller tips than their white counterparts for the same quality of service. The discrimination can also go both ways: Servers can give worse service to populations who, according to racist stereotypes, are perceived to be bad tippers. It's also widely understood that tipping culture contributes to sexual harassment. 

Secondly, tipping makes for an unstable income for tipped workers. “You aren't able to say, ‘I'm definitely going to have enough money to pay my bills and pay my rent this month,’” says Rosengren.

Leland agrees: “I was working at a few other places before I came to barcito where I'd walk out with 30 bucks one night. I was like, ‘I can't predict my life.’”

Sam Mangino, who wrote her college thesis on tipping and has served for tips and without them, says tip size is only minimally influenced by quality of service. “Tipping habits don't change when someone walks into a restaurant, they already have those decided,” she says.

Rosengren experienced this back when she worked for tips. “You could have an off day, you could really mess up a table or feel like you really did a bad job and someone will still tip you 20%, which is great and wonderful, or you could be so on, do every single thing right, by the book, done a perfect job, and still get a 12% tip, because it really doesn't matter. People know what they think is fair to tip and that's what they're going to tip regardless of what you do. And when you realize that as a server, it's pretty defeating,” she says.

Anyone who’s ever worked a service job likely has an opinion about the tipping system. It can be a fantastic way to make good money with or without a college education, but the system’s drawbacks are starting to be noticed by guests and servers alike. 

However you feel about it, it’s exciting to see restaurateurs trying to swim against the current and make changes towards equity in the American restaurant industry.

We covered all this and much more in the Gratuity-Free Restaurants episode of The Garnish, which you can find wherever you get your podcasts. Subscribe to the podcast newsletter so you never miss an episode. 

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