How New York City's Service Industry Is Facing a New Era

How New York City's Service Industry Is Facing a New Era
Randy Pollak

It’s a cold, hazy afternoon in November and the barroom at the Modern — the chic, two-Michelin-starred restaurant attached to the Museum of Modern Art — is humming with an odd mixture of excitement and unease. Clad in dark vests and white button-downs, servers whisk elegant plates of black-truffle cavatelli, beef filet en croûte, and duck confit mezzaluna to the small squarish tables staggered along the room’s hardwood floor. On this day, the waitstaff — roughly a half-dozen servers and bartenders in their late twenties and early thirties — are eager to answer questions concerning portion size and wine pairings and to explain the carefully measured ingredients behind each of the bar’s signature cocktails.

But despite the quality of the service and the caliber of the cuisine, as of November 19 the Modern became the first of thirteen restaurants owned by the Union Square Hospitality Group to abolish the practice of tipping. The new “Hospitality Included” program is the brainchild of the company’s longtime CEO, Danny Meyer. Though the shift has been heavily publicized — and yet another of New York's power players, Eleven Madison Park, recently announced its own plan to eliminate gratuities in 2016 — it is still somewhat shocking to find a piece of paper tucked unobtrusively beside the check: a note from the restaurant strongly dissuading its guests from leaving a gratuity.

Meyer heads up just a handful of the city’s roughly 24,000 restaurants. But the precedent set by the USHG’s new no-tip policy — paired with mounting pressure from credit card companies to adopt pay-at-the-table technology — could represent a seismic shift in the way New Yorkers compensate their servers.

“I think it’s pretty inevitable that the whole system is going to change,” says Marc Murphy, the president of the Manhattan chapter of the New York State Restaurant Association and owner of the Landmarc, a French and Italian bistro with locations in Tribeca and Columbus Circle. “There’s no other way for restaurants to survive without that. It’s going to happen. It’s just a matter of when and how the public is going to accept it.”

Attorney Louis Pechman says income inequality at restaurants shouldn’t come “at the expense of the waitstaff.”EXPAND
Attorney Louis Pechman says income inequality at restaurants shouldn’t come “at the expense of the waitstaff.”
Santiago Felipe

Tipping first came to the United States from Europe shortly after the Civil War, and over the years the practice has become such an ineradicable part of American dining culture that reports have surfaced of customers forcing money into servers’ hands despite the Modern’s new policy.

“Hospitality Included” has less to do with patrons, however, and more to do with staff. Typically, at a restaurant, waiters and bartenders make the lion’s share of the profits through gratuities while back-of-the-house workers such as dishwashers and cooks are left with low-paying hourly wages, unable, under New York State law, to take a portion of the tips. By abolishing tipping at the Modern altogether, and rolling hospitality charges into the cost of items on the menu, the idea is to begin to level the playing field between service positions. Since doing away with tipping, the restaurant has been receiving two to three new kitchen applications each day.

“Danny Meyer is doing the Bernie Sanders thing,” explains Louis Pechman, an employment and labor attorney who represents restaurant workers in New York City. Pechman also runs, a website designed to promote awareness of wage and hour laws in the service industry. “There will be a redistribution of wealth because of a perception of income inequality between the front of the house and back of the house.

“That’s a great goal,” he adds. “But it shouldn’t be done at the expense of the waitstaff.”

For well over a century, tipping has allowed Americans to feel like the masters of their dining experiences. The standard perception is that if a server is rude or inattentive, his or her tip should go down; if a server is exceedingly friendly and accommodating, the tip then goes up. Critics of all-inclusive restaurants argue that by doing away with gratuity entirely, servers will no longer feel motivated to perform their duties at a high level. In fact, a recent Quinnipiac University poll shows that 55 percent of the city’s restaurant-goers oppose Meyer’s plan to eliminate tipping, while only 36 percent are in favor of the shift.

But under the new system at the Modern, there's still plenty of reason for servers to push expensive plates and keep their customers coming back for more. Beyond a substantial increase in their hourly wage — to $9 from $5, the current minimum for tipped workers in New York State, which will rise to $7.50 on December 31 — a large portion of servers' paychecks at the Modern will now come from revenue sharing, the funds to be split and apportioned according to position and seniority. (For the time being, back-of-the-house workers will not be permitted to participate in the program. Instead, line cooks will be paid $14 an hour and other behind-the-scenes employees, like dishwashers, will make $11.)

“[Servers] are sharing the revenue that the entire business generates. It’s a great way to incentivize them. The better the business does, the better the staff [members] do,” explains general manager Simon King. Though servers’ earnings will fluctuate slightly between the restaurant’s slow and busy months, he believes the new system, with larger front-of-house base wages, is far less volatile and as such breeds professionalism. “It’s not all about the dollar sign; it’s about the ability to learn and progress and have a path where they can develop their careers at USHG, or within our industry at the very least. It’s about the experience, it’s about work-life balance, it’s about how their schedules are now arranged. I think, overall, it remains a positive.”

On December 2, staff members received their first paychecks since the rollout of Hospitality Included, and King and the rest of the Modern’s management team sat down with each individual worker to make sure they understood how their earnings were being calculated.

The effect on performance remains to be seen, but many within the restaurant industry doubt that how waiters, waitresses, and bartenders are paid — whether via tips or revenue sharing — will have much of an impact. Gratuity and incentives, these observers say, simply provide customers with a false sense of control over the service they receive.

“A shitty server is a shitty server. It doesn’t matter how much you do or don’t tip them,” says Karla Harscheid, a waitress and bartender at Dirt Candy, a vegetarian and vegan enclave on the Lower East Side owned by chef Amanda Cohen. “I don’t think tipping changes how a person acts. I would say that if you gave somebody $500 in a night, they would be in a better mood, but those nights don’t happen all the time.”

Having worked as a server for over ten years, Harscheid joined Dirt Candy in February just as the restaurant was upgrading from a tiny, eighteen-seat space in the East Village to a forty-seat room on Allen Street. Upon relocating, Cohen opted to forgo gratuities in favor of a mandatory 20 percent “administrative fee.” Spreading the profits more evenly between the front and back of the house, the restaurant began paying its servers a flat hourly wage of $25.

“A shitty server is a shitty server, but to be fair a shitty guest is also a shitty guest — people who treat you like you’re a servant, rather than a server,” Harscheid explains. Though she no longer has nights where she walks out of work with hundreds of dollars in cash, she says the hourly wage at Dirt Candy has provided her more stability and enabled her to pay off thousands of dollars in credit card debt. Today, her making a decent living no longer hinges on the vagaries of her customers. “You’re not actually tipping on your experience,” Harscheid says. “You’re either a 15, 18, 20, or 30 percent tipper. That’s who you are as a person.”


Amanda Cohen’s Dirt Candy was among the first restaurants to eliminate tipping.EXPAND
Amanda Cohen’s Dirt Candy was among the first restaurants to eliminate tipping.
Santiago Felipe

But what might ultimately have the most profound effect on the amount people tip at restaurants is the actual physical way they pay.

Businesses throughout the U.S. were told by credit card companies that they must either update their card readers with new EMV technology by October 1 of this year or else become responsible for any fraudulent charges made by their customers. For restaurants, such an industry-wide shift means servers would likely need to bring handheld terminals to patrons directly at their tables; the fear is that the already fraught practice of tipping might become even more uncomfortable and costly with a waiter anxiously hovering about.

While non-tipping restaurants like the Modern may ultimately lead to waiters taking a pay cut, EMV card readers could very well engender the opposite effect at restaurants where gratuity is still the standard.

“I believe there is a social pressure to increase your tip amount if the person who will be receiving it is standing over your shoulder,” says Andrew Rigie, the executive director of the New York City Hospitality Alliance. “It could create an awkward situation. In a fast-casual restaurant, where you’re purchasing something at a counter, dipping your card is fine. But at a full-service restaurant, a check presenter is often left at the table and someone will leave the card as they’re finishing their dessert and coffee, rather than having [a waiter] bring the device to the table to process a transaction. It also could imply that the restaurant is rushing you to leave.”

EMV, which stands for EuroPay, MasterCard, and Visa — after the three companies that created the standard — was first implemented in Europe in the mid-Nineties and has since been adopted by nearly every major economy in the world besides the U.S. Under EMV, credit cards come equipped with microprocessor chips and are inserted, rather than swiped, into point-of-sale terminals. Patrons are then prompted to either enter a PIN number (a system commonly referred to as chip-and-PIN) or sign their name (chip-and-signature).

EMV helps fight fraud by potentially shutting the door on two major weaknesses in the current payment system. First, the chip and terminal are able to have a “conversation” with each other, which serves to better authenticate the transaction digitally. And second, by having the credit card never leave the patron’s possession, the risk of real-world, person-to-person theft is greatly reduced.

Restaurants can still operate much as they always have under chip-and-signature — with patrons handing their card over to a server, who then completes the transaction away from the table — but the process still leaves the back door open to fraud. Chip-and-PIN, with payment and tip completed entirely at the table under the diner’s supervision, is the most effective method for preventing theft.

EMV is not a federally mandated regulation, however, and the October 1 deadline simply represented a shift in liability. In the past, if a fraudulent transaction took place at a restaurant, the bank or credit card company would eat that charge — not anymore.

“How EMV works and how it kind of fits in with the culture of how we operate with our cards and how we behave in restaurants, it’s not a perfect mesh yet,” admits Steve Mathison, senior vice president of payment acceptance at First Data. A global payment solutions company, First Data has been helping businesses and restaurants migrate over to EMV in recent months. “But there are technologies and implementation styles that the restaurants can use to make it as seamless as possible.”

Even so, at Peter’s — a casual, Southern-style comfort food joint on Bedford Avenue in Williamsburg — the transition to EMV has been a rocky one. Though the restaurant is set up for counter service, rather than pay-at-the-table, the new point-of-sale terminal forces the cashier to ask each individual customer if their credit card features a chip and then walk them through the process step by step. When the machine prompts a patron for a tip, the cashier is more or less forced to oversee the entire transaction from beginning to end.

“It is [awkward]. It is,” says Kristina Massa, one of the employees who works the counter at Peter’s. “We see [the tip] right there because we have to make sure they’re doing it the right way or canceling it, because if you cancel it twice, the third time it locks you out.

“Honestly, customers tell us straight up that it’s a waste of time,” she adds. “It doesn’t make sense.”

When patrons are prompted to leave a tip on an EMV card reader, like at Peter’s, default options for 10, 15, and 20 percent (and so on) typically appear on the screen. This, too, may have the power to drive up gratuities.

In 2014, researchers from Columbia University and the University of Chicago published a study in the American Economic Journal arguing that the credit card touchscreens found in New York City taxicabs actually increased tip amounts. To begin with, riders were reluctant to perform any sort of calculation on their own, often choosing the middle preset percentage in order to avoid an unnecessary hassle.

“The truth is, like in a taxi, you either leave 10, 15, or 20 percent,” says Dirt Candy’s Cohen, who grew up in Canada, where EMV card readers have long been used in restaurants. “That’s the norm. It’s more abnormal to actually punch in the number. You’d actually have to sit there and focus on it.”

According to the 2014 study, default options do in fact create a perceived social norm and psychological pressure among customers — a feeling that, by dipping below the suggested percentages, they were showing dissatisfaction with their experience. The higher the default options presented on the screen, the higher the tips became, the research found.

But ultimately, whether the shift comes from industry-leading restaurateurs or advances in technology, for better or for worse tipping in New York City is on the cusp of changing drastically. At the Modern, as New Yorkers continue to flock to the restaurant’s white-truffle risotto and decadent foie gras tart this fall, all one has to do is look at the bill to understand that we are now living in different times.

“Our staff is delighted to provide service and hospitality without the need for you to tip,” reads the note beside the check, signed by Danny Meyer and the team at the Modern. “This is a departure from the old way of doing things.” 

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