Canadian HR Reporter

Credit: arturasker (Shutterstock) FIXED > pg. 31 By Sarah Dobson T hey may appear as a small item on the bill, but tips represent a huge challenge in the restaurant indus- try. And a recent study suggests there are several operational issues arising from tipping that include inequity and unfair- ness, a loss of control of service quality and diffi culties in succession planning and promotion. "If tipping is to continue, restaurants will continue to have to manage the signifi - cant issues that arise. e industry needs to take a hard look at the best model for customer interaction and staff remunera- tion for long-term success," write the au- thors and University of Guelph professors Bruce McAdams and Michael von Massow in Ontario. Results e two academics found tips represent a signifi cant portion of servers' income — particularly since a portion of the cash tip income is unlikely to be reported and taxed — in interviewing 52 restaurant managers and 47 servers, along with sur- veying 160 restaurant servers, mostly in Ontario but also in others parts of Canada and the United States. Seventy-fi ve per cent of the respondents made more than $10 per hour in incre- mental wages from tips, while 50 per cent earned more than $15 per hour and 25 per cent earned more than $20 per hour. e practice of "tipping out," where serv- ers share a portion of their tips with other staff , is very common, and most often the tips are shared with front-of-house staff such as bussers, bartenders or hostesses, along with kitchen staff including cooks and dishwashers. But, for the most part, the back-of-house staff receive a smaller portion of the tips, representing about $30 to $50 every two weeks. Tipping out the "house," meaning tips are also shared with managers and owners, happens in about one-fi fth of the cases, found the researchers. And most servers (89 per cent) agree tipping out is fair because others add value to the service experience. However, 51 per cent feel the tip out they pay is too high — the average level is between 2.1 and three per cent of sales, found the authors. Operational issues rough the interviews, McAdams and Marrow identifi ed a number of operational issues arising from the practice of tipping: Inequity of value distribution e inequality of wage distribution was highlighted by managers as a particular challenge. Servers were making an aver- age of $26 per hour with tips included, while cooks earned an average of $11 to $16 per hour, earning about $1 to $3 in tips per hour. If a person goes to a restaurant and spends $85 on dinner, with a tip of $15, the restaurant gets $100 for the value of the meal but $15 of that is beyond its control and goes to the server who, on average, can make up to $27 or $28 per hour with tips, says McAdams. " e owners don't have control of that money to say, 'Hey, we'd like to redirect $5 an hour of that to our cooks.'" Second compensatory system Using a tipping out system creates a sec- ond compensatory system where the tips create income for servers. is can lead to relationship issues such as jealousy and ani- mosity, says McAdams, citing "the amount of time that managers actually had to spend at work managing issues that came up be- cause of tipping and how much time they had to sort of manage the actual payroll system, the compensatory system." ere are also tax liability concerns with this arrangement, he says. "From a compensation point, once you take control of a tip as an owner or a man- ager, you have to withhold the employee taxes so EI and CPP and everything on it. And if you don't, you're liable, so there are restaurants that are actually doing this and there are huge risks by tip sharing." Lack of control of revenue, rivalry With the tipping system, different ap- proaches to rewarding performers have emerged, such as good shifts — with a high potential for tips — being given to good performers, say the University of Guelph authors. But this can lead to resentment from oth- ers, and make it challenging to have good performers in poor shifts. It can also cause variability in service quality and see managers playing favou- rites with servers while also controlling income by assigning shifts or cutting spe- cifi c staff early, said the authors of "Tipped Out: How do Gratuities Aff ect Restaurant Operations?" Tip "ownership" can cause unhealthy ri- valry between staff , with tensions around the transferrance of a bar tab to a table, for example, or issues around large parties that tend to tip less or servers competing for guests who look like good tippers. Quality management Since tips are outside of management con- trol, it is diffi cult to manage service quality, and servers may tailor the service experi- ence to their perceptions of the size of the tip. "Tipping can create individual goals versus organizational goals, or have serv- ers work towards individual goals, so they would work for themselves. And in the restaurant business, managers often say, 'Treat your section like your own business,' but we studied restaurants where… serv- ers wouldn't take care of guests at the front door and sections other than their own be- cause they were just worried, or walk food, unless it's their table, unless it's their sec- tion," says McAdams. "So, as an employer, if you have people not trying to work for the long-term orga- nizational goals, they're working for their own short-term gain — it's not really good alignment." is can also mean a lack of teamwork, with servers neglecting to help each other. And there's the phenomenon of "quota servers" who have a fi xed tip total in their minds and once that's achieved, they shut down and service quality declines. On the other hand, tipping can help with labour costs, as it's easier to get servers "off the clock" during slow times because there's less motivation to stay. "Tipping can have servers working towards individual goals versus organizational goals... it's not really good alignment." FEATURES COMPENSATION A flawed compensation system can lead to several issues including inequity, rivalry and leadership challenges, says one study

• Cover