Why Newport restaurant has 'no tipping' policy

The Packhouse Meats restaurant opened in Newport this January with an unusual all-meatball menu and an even more unusual policy: No tipping the servers who take your order and bring food to the table.

"No tipping" signs are posted prominently in the restaurant and on the menu; there is no line for a tip on credit card receipts.

Bob Conway, owner of Packhouse, said he got "pummeled" for it on review site Yelp by people accusing him of taking advantage of employees. Said Conway: "We did it to protect the servers."

He thinks it is actually the established custom of tipping that takes advantage of servers, especially in the casual end of the market. Packhouse Meats is his experiment to find a better way.

Conway is the former president of the Bistro Group, which runs local TGI Fridays and McAlister's Deli restaurants, and he is now on its board of directors.

"I've heard the horror stories – $3 left on a $100 tab," he said. "How much a server makes has nothing to do with how hard they work. Servers had quit because they couldn't make ends meet."

So, in his new restaurant, he had a chance to try a different approach: "We wanted our servers to participate in our productivity by giving them reasonable compensation based on sales. It takes the whim of the customers out of it."

Packhouse servers earn $10 per hour or 20 percent of their individual food sales per shift, whichever is larger – almost always the 20 percent. And servers have to meet certain goals – sales and service targets, for example – to get their 20 percent.

"I don't think people understand that, when they are customers in a restaurant, they determine what their server's wage rate is," said Conway.

Former server Mark Ventura, now an economics major at Miami University, came to understand that principle while waiting on tables at several local restaurants. "Owners are essentially saying, 'Welcome to my restaurant; now please pay my employees,'" he said.

This system has been called un-American; in the early 20th century, an anti-tipping movement resulted in several states' outlawing the practice altogether. Labor leader Samuel Gompers and native Cincinnatian William Howard Taft, the 27th U.S. president, were among the anti-tipping movement's leaders.

The anti-tipping laws were repealed in the 1920s, and Americans were back to their tipping habits. They have since been formalized in a system in which restaurants in all but seven states pay a very low wage to servers, expecting voluntarily given tips to be the bulk of their income. The wage for servers in Ohio is $3.93; in Kentucky, it's the same as the federal rate: $2.13.

The federal rate hasn't changed since 1991.

"Many servers' paychecks are zero," said Maria Myotte of Restaurant Opportunities Center, a nonprofit organization that advocates for restaurant workers. "Their taxes are taken out of the paycheck, leaving their compensation completely made up of tips."

If a server doesn't earn enough in tips to add up to minimum wage, employers are supposed to make up the difference between the subminimum and minimum wage. According to the Restaurant Opportunities Center, this often doesn't happen.

"Restaurants are notorious for wage violations." said Myotte.

Among the 9,000 restaurants the U.S. Department of Labor investigated between 2010-2012, nearly 85 percent of them were in violation of wage laws, including that requirement.

One of the Restaurant Opportunities Center's activities is lobbying to eliminate the subminimum wage. But the most recent legislation for raising the federal minimum wage, which stalled in the Senate, included gradually raising the subminimum rate to just 70 percent of the minimum wage.

The base wage rate may not matter terribly to servers in fine dining restaurants. In a busy restaurant with high check averages, servers can earn a decent hourly wage.

"Customers at restaurants on Vine Street understand. They come with money in their pocket, and they're ready to tip." said Leah Fleischer, a Northside resident who has served at several high-end restaurants. "Sometimes people come in in a bad mood, and if you don't do something to get them out of it, they don't tip. But then there are also people who will tip 20 percent (of the bill) no matter what."

Fleischer said she averages 25 percent tips. But fine-dining servers are the minority in the restaurant business; most servers work at casual and chain restaurants. Industry-wide, the average compensation for servers, including tips, is $8 an hour.

At casual dining spots, said Conway, not only is the check average lower, customers are less reliable tippers. The slow economy only made both worse, leaving servers vulnerable.

The National Restaurant Association, which opposes any raise in the minimum wage, says that, if restaurant owners are forced to pay workers more, the cost of dining out will rise and restaurants will close or hire fewer workers.

Conway, in fact, charges more for his meatballs than he would if his servers were paid by tips. In restaurants, prices are determined by multiplying the food cost of a dish by a certain factor to cover all the other costs of running the business and making a profit. So instead of multiplying by four, the common factor in his market segment, he has to multiply by five (rounded off to the nearest quarter). That means that an individual meatball, with a food cost of 60 cents, costs $3 instead of $2.40. To the diner, that's the same amount it would cost if they left a 20 percent tip.

Even when it takes the burden off the diner, a tipless system can be a hard sell. Chef Jean-Robert de Cavel tried a European-style service charge at his former restaurant Pigall's, Downtown. A 17 percent tip was calculated by the restaurant and added to the bill. "I think people liked it, but it was so hard to explain," he said. "They were very confused by it."

There are a few restaurants around the country trying a no-tipping policy. In New York, a Japanese pub called Riki doesn't take tips; in Glendale, California, Brand 158 doesn't either. But there is not yet a strong movement to a new system. Christin Fernandez of the National Restaurant Association said, "The restaurant industry is still a heavily service-based industry, and tipping promotes the spirit of hospitality that is traditionally associated with our workforce."

Conway said people are coming around – slowly.

"At first I was the big, bad businessman," Conway said. "But when I have a chance to explain it, people see that it makes sense. Then there are people who understand the idea, but still like to leave a little extra. I understand that, and it's fine."

His servers, all part-time, are earning an average of $15 per hour (plus any extra cash left by customers).

Jessica Krebs, a server at Packhouse, said she likes the system. She previously worked at Frisch's and Cheddars.

"I really like getting the lump sum check every other week," she said. "It's easy to reach the targets to get the 20 percent, so now I'm getting a 20 percent from every table. I used to make maybe 15 percent on average; sometimes tables only left 5 percent. It also makes all the servers act as a team." ■