The Problem With Tips
It is quite common for service staff today to make no attempt to mask their expectations of receiving tips, even for sub-par service, or for no service whatsoever. A 15% tip is considered the baseline for basic service by many in the industry — and the trend continues to reach into non-hospitality industries — it may not be long before you have to tip your dental hygienist to ensure painless cleanings.
We founded Prairie Dog on the principle of the triple bottom line, which aims to make companies accountable for not only their profits and losses, but for their environmental impact and effect on people and the community. We believe that the tip model employed by most establishments is not benefiting the community because it is regularly used as justification for discrimination and illegal labour practices against staff, and encourages deceptive sales tactics against customers. When we set out to build Prairie Dog Brewing, we took direct aim at breaking the expectation of tips by designing our entire business model around a no tip expected philosophy.
Our Approach to Labour Practices
We see our staff as our most precious and valuable resource, so it is absolutely vital that we both attract and retain them, which means they have to be able to pay their rent, stay healthy and enjoy coming to work. Therefore:
- We pay above minimum wage for nearly all positions — often well above. Base wages in our brewpub are among the highest that we know of in similar Calgary businesses.
- We never ask or expect staff to work off the clock and we strictly follow Alberta Labour Code regarding paid breaks, stat holidays, overtime, etc.
- We never ask staff that arrive for a shift to sit unpaid while they wait for the restaurant to be busy enough for them to start, aka “benching”.
- We offer co-paid health & wellness benefits (medical, dental, vision care, etc.) to non-probationary staff.
- We provide flexible work schedules that are tailored to each employee’s preferences and abilities, including 2-day weekends and avoidance of split shifts.
- We offer many other perks like free beer, in store credit and discounted meals and merch to our staff.
- We pay for staff education like Cicerone exams, food safety courses, and forklift training.
- We have a fully-functional Health and Safety program that we take seriously, including providing personal protective equipment for our staff and training them on potential safety hazards.
Unfortunately, all of the items above are not commonly available to restaurant and brewery staff elsewhere. Many restaurants won’t even allow their staff to drink water on the floor during their shift!
Aside from compensation, perks and benefits, we put a lot of effort into providing staff with feedback early and often. We conduct mini reviews at several points throughout each person’s 90-day probationary period, and formal 360-style reviews every six months thereafter. Our owners and managers have a personal relationship with the staff and usually know what’s going on in their personal lives. When someone’s performance drops, our first reaction isn’t to fire them or chastise them, it’s to start a dialog about what’s going on and to help coach them through their challenges. This is Management 101, but again it isn’t the norm in our industry, or any other industry that heavily relies on tips as an incentive.
The Prairie Dog Staff Fund
If, after learning about how well our staff are treated and compensated, a customer wants to further reward them, they can contribute to our Staff Fund — a pool of money that gets distributed to the staff in several ways:
- We pay 75% of Staff Funds directly to all staff equally, based on the number of hours they worked during the collection period (typically a 2-week pay period).
- We hold back the remaining 25% of collected funds to use as direct bonuses for staff that perform especially well, as well as for birthday gifts, contest prizes, staff-initiated activities and other perks.
Prairie Dog Staff Funds are not for ownership, even though our owners are often preparing your food, scrubbing down your tables, serving you at the bar or running out your food and drinks. This fund is solely for employees of Prairie Dog Brewing.
Check out how we spent staff funds in 2019 in the chart above.
Is the Staff Fund a Tip Pool
Yes and no. For tax purposes the Staff Fund operates like a tip pool, but we allocate funds differently than other area restaurants. Customers have a lot of pre-existing notions around tips — and many of those notions are romanticized and inaccurate, so we chose the term Staff Fund to make it clear that this is something different than what people are familiar with.
In most tip pools, everyone contributes all of their tips into a daily pool, then the tips are redistributed out to the staff that worked that day using a tip-out formula, where a percentage goes directly to the server that “earned” the tips, and the rest go to other key positions in a fixed ratio.
In competing establishments that we hear about through our staff and interview candidates, tip pools can include substantial tip-outs to the house (managers and owners), sometimes at rates as high as 50%. As mentioned earlier, Prairie Dog ownership is excluded from receiving Staff Funds, while employee-managers are eligible based on hours worked, at equal rates as all other employees.
At businesses that maintain the status quo, the server or bartender that originally collected a tip tends to take the lion’s share of funds remaining after the house’s take, which creates pay disparities and can cause staff to harbour resentment toward one another, while encouraging dishonest behaviour (like padding bills with unwanted items, over-service to encourage bad spending decisions, providing poor service to groups made up of genders, ages or nationalities that are stereotyped as poor tippers, etc.).
Sometimes tip-outs at other area restaurants are based on a percentage of daily server sales. If a server has a bad day in one of these establishments, they can actually end up owing money to the restaurant. We have nothing like this.
In our model, Staff Funds are doled out to all of our staff based on cumulative hours worked during the entire 2-week collection period, rather than on the basis of daily sales or earnings. This works to ensure that staff who work the slower day shifts benefit equally to those who work the busier evening shifts. This is very important because daytime staff are likely to experience a smaller average spend per customer (and therefore smaller tips) due to smaller lunch portions, daytime specials and happy hours than a weekend server, even though they might take on a similar number of customers per shift hour. At the same time, our weekday service staff have to be capable of handling unexpected rushes by themselves (a 40-person Wednesday afternoon walk-in is not uncommon at Prairie Dog Brewing). With a conventional tip structure, the weekend staff can earn far more per shift hour even though they have more peers to lean on when things get busy (a 40-person walk-in on a Friday night with 5 servers is only 8 extra customers per server, whereas on a weekday afternoon, a single server will be dealing with all 40 people in addition to their existing workload).
At Prairie Dog, we truly operate as a team. A typical guest experience on a busy evening requires between 8 and 12 people working together to ensure that your table, menus, plates and cutlery are ready to go when you arrive, that bathrooms are stocked with toiletries and clean, that your food and drinks are ordered and arrive promptly at your table in the correct state and at the correct seat, that drinks are replaced/refilled and that your food scraps and any messes left by your party are cleaned up after you leave. Servers cover for one another during breaks or when they are busy taking payments at large tables; they run each others’ food and drinks and bus each others’ tables or take over tables from one another to balance workloads. Managers and supervisors ensure adequate staff coverage and assist wherever needed, all while coordinating bar orders and dozens of other things.
Before you arrived at Prairie Dog Brewing, our Pitmaster and prep cooks worked to prepare your food, and weeks or months before that our brewers were working to design and brew the beer you consumed. Our admin team worked to ensure that our point of sale system correctly billed you for the items you ordered and ensured that our business remained solvent and in a position to employ all of the people on our team, and to do so in a way that conforms with local laws and HR best practices.
There are hundreds of tasks that have to be done on a daily basis to ensure that your experience is a positive one. The individual server or bartender assigned to your table is responsible for only a small fraction of the experience you receive. No one person on our team is more or less important than anyone else, so we treat them that way with our Staff Fund, using scheduled hours, hourly wages, performance-based bonuses and other perks to reward individual staff members’ behaviour.
How Can I Contribute to the Staff Fund?
There are three ways you can contribute to our Staff Fund:
- Directly ask a server to make a contribution on your bill prior to cashing out. You can contribute an arbitrary amount of your choice or ask for a high five from our Brewmaster/Pitmaster for $2, or “buy us a beer” for $5 (the staff automatically get free beer at the end of every shift — this money goes into the staff fund for later distribution). These options have been available since we opened in June of 2018, but we’ve had trouble educating customers about them and people often forget to ask to add funds to their bill before check out, which leads us to our next option.
- Use the tip function on our electronic payment terminals. This is a new option starting February 2020, after being the #1 ask from our customers and staff since we opened. Although the terminal asks if you would like to leave a “tip”, this is a Staff Fund contribution. Unfortunately there is no way for us to change the electronic “tip” text on the machine.
- Leave cash at the table. In the past, this has been our regular customers’ preferred method due to the lack of option #2 above, but it only works if you remember to bring cash, which is becoming a rarity in our electronic society.
All funds collected, regardless of the method, are placed directly into the Staff Fund for allocation as described earlier. Servers are prohibited from taking these funds directly, they must be shared among the entire team.
Service [Not] Included
In the past we used the phrase, “Service Included Pricing”, to describe our “No Tip Expected” model. Unfortunately, this led to confusion for customers, job applicants and even some of our early staff, who assumed that we simply built a 15-20% gratuity into our prices and would pay it out like one of the tip pools at our competitors’ establishments.
To be clear, we absolutely do not have any sort of built-in gratuity in our menu pricing, whether it be for a table of 2 or a party of 80. Our prices directly reflect the cost of our ingredients and operations. Certainly, our fair wages and benefits make up a large portion of our operating costs, but nowhere near a 15-percent-of-revenue premium that would equate to a 15% tip at another restaurant. We typically aim for a 30% labour cost, whereas many other area restaurants operate in the neighbourhood of 25%, so our costs are only around 5% higher.
Although our labour costs are 5% higher, most of our staff are directly paid quite a lot more than 5% above minimum wage (which is what they’d make elsewhere). So why is our labour cost so low, comparatively? First, we are hyper-focused on our scheduled labour and tend to schedule on the conservative side. Second, we’ve put technology into place like tablet-based table ordering and trained our servers and cooks to be extremely efficient. Third, our managers and owners work side by side with staff on the floor or in the kitchen, displacing some labour cost. Quite often, it’s an owner that you’re watching bussing tables, polishing cutlery, manning the expo window, pouring beer at the bar or running out drinks and food, which focuses our service staff on the direct interaction customers at the table or bar.
When framing this discussion around tips, it is important to acknowledge that our staff may not receive as high an hourly compensation rate during busy shifts as they could in a competing establishment. For example, a bartender at a busy bar could bring in $300 in tips on a typical Friday night from the people that they directly served. Even after putting their tips into a pool and losing some to the house and another portion to the kitchen and other key positions, they will often walk away with 2/3rds of their original tips because they received a substantial portion of each server’s tips based on the tip-out formula. That could easily equate to a combined $40/hr pay rate during that shift, which we at Prairie Dog could not reasonably expect to pay through regular wages, because we’d be paying at that rate across all shifts for that bartender. So without tips, our bartenders on Friday/Saturday nights are probably not earning as much as they might elsewhere, but money isn’t everything and when averaged out over the rest of the week, our bartenders can still earn a higher monthly wage whilst also receiving better treatment and benefits than they would at those other jobs.
Back to the topic of whether or not we build service into our prices, the reality is that our average spend per customer tends to run on the low side compared to some of the other restaurants that we’ve gained insight into. This could be because we do not have sophisticated marketing, menu pricing, and sales tactics designed by psychologists to influence customers into spending more than they planned. We also don’t have any expensive steak dishes on the menu and our larger BBQ platters are designed to give groups more economical pricing than they’d pay individually — and our format has made us especially popular for large groups. Finally, the fact our staff are not directly incentivized by tips gives them fewer reasons to try to pad customer bills with upsells and drinks they didn’t ask for.
That brings us to the Staff Fund. Contributions to the fund directly offset some of the disparity between our regular hourly wages and the effective wages staff might see if they worked in a tip-based establishment, but without incentivizing bad behaviour from our service staff of discriminating against staff in support positions or the kitchen. Essentially we are operating a hybrid model, trying to find a sweet spot between two systems that is the most honest, equitable, rewarding, and fun for our staff to work in, at the same time as we carve out a small margin of profitability to prepare ourselves for future growth and sustainability, which any company should be expected to do, lest it die.