Now that some restaurants have moved away from tipping in favor of “service included” pricing or add-on fees, some hotel operators are eyeing the strategy a little more closely. With pressure to boost wages, eliminating tips might seem in theory like a reasonable way to create a more reliable income stream for employees, but in practice it’s not the right solution for every property. Here are a few things to consider.
Tipped income will need to be replaced, whether it’s by bumping up room rates or imposing a service fee. Choosing the latter approach requires some legwork, says attorney Bernice Blessing, an associate at Garvey Schubert Barer in Seattle. Laws covering service charges often specify who can share in those fees and whether an employer can retain some of the money.
“Don’t assume that because you’ve read a few things about service charges versus tips, you know everything. Definitely know what the law is,” she advises.
Raising rates is another option, one that many properties would have trouble pulling off. The Waldorf Astoria in Chicago, which pays hourly employees a 25% to 30% premium over market wages, folds the additional wages into rates. “We charge pretty high room rates for a variety of factors, one of which is that we don’t take gratuities,” says Todd Chambers, managing director of the hotel. “But we’re still very competitive in our set.”
Expect a learning curve. Employees will need to adjust to the new arrangement. Daniel Hostettler, president and group managing director of Rhode Island-based OHM Collection, says it’s easier to introduce a no-tipping rule with a newly assembled staff, either in a new-build or when new management steps in.
Typically staffs are trained to politely decline offered tips and explain the property’s policy. But if the guest insists, the tip may be accepted to avoid creating an awkward situation. At OHM’s four luxury resorts, tips are forbidden (aside from the restaurants) and new hires sign a contract spelling out the consequences of accepting gratuities — including possible dismissal. “When we say no tipping, we really mean no tipping,” Hostettler says.
Guests will need training, too. At The Siam in Bangkok, General Manager Nick Downing often fields questions about the proper amount to tip, and he uses the exchange to educate guests. “I explain that while it is nice to recognize someone who may have stood out providing exceptional service, we also have a service charge to recognize those behind the scenes who make everything possible for the team in front of the guests,” he says.
Recruiting and retention could be challenging. Many restaurant servers have departed after their employers took tips off the table, claiming their total compensation took a big hit in the process. The bell and valet staff, accustomed to generous tips, might balk when those are removed from the equation. It helps if a hotel can share its track record of salaries under a no-tipping scenario — and stress that non-tipped income is likely to be more predictable.
“We do an annual wage survey comparing us with the competition, and we can show employees at the end of the year how they are making more at our property,” Hostettler says.
Hotel Angeleno in Los Angeles, which rolled out a “skip the tip” approach in 2016 to coincide with a property rebranding, hasn’t seen a jump in staff turnover in the process, says sales and marketing director Dean Yamashita. But it probably helps that the switch occurred around the time hotel employees fell under the city’s living wage mandate, which raised their wages to north of US$15 an hour. Restaurant servers at the Angeleno get a premium over that to approximate their tipped compensation.
The Waldorf Astoria’s Chambers says a major advantage of paying hourly associates wages 25% to 30% higher than the market rate is the hotel’s ability to attract better-caliber talent.
Eliminating tips often encourages teamwork. Depending on how service fees are distributed, they can result in better service overall. That’s what Hostettler has seen at OHM Collection’s properties. The company uses an algorithm based on guest satisfaction scores by department and other factors to divvy up the majority of the US$38 resort fee; higher scores net higher payments.
“There is absolutely some self-policing that goes on,” Hostettler says. “If you have 10 bellmen and one isn’t pulling his weight, the others will exert pressure.” Knowing their wages depend on providing good service has resulted in steadily higher scores for the hotels as well, which has allowed them to increase the resort fee. “The long-term benefit for us is the ability to raise rates because of better service,” he says. “The staff goal is aligned with the hotels’, and they are making more money as we are.”
What to consider
- What’s the goal, and how will a new policy serve it? Are you trying to provide higher wages across the board, attract a better class of employee, grow revenue, improve service or make life easier for guests?
- How loyal are your guests? Will they balk at higher room rates or add-on fees? What kind of disclosure must you provide?
- What are the financial and legal consequences of imposing a service charge?
- How will you police the no-tip rule?
Contributed by Megan Rowe