With the widespread use of payment modules, tips paid to servers are increasingly high. However, this great generosity of customers, who sometimes leave a large sum in spite of themselves, harms the profitability of the restaurant, noted François Pageau, professor of management at the Institut de tourisme et d’hôtellerie du Québec (ITHQ).
The bigger the tips given to servers, the poorer the restaurant owners become, he says. Payment terminals offer high tip options that start at 18% and can go up to 22%. “There are charges that are linked to tips. And when restaurateurs put the tip after taxes, it’s even worse. By doing that, they’re shooting themselves in the foot,” laments Professor Pageau.
When a customer pays the bill with his credit card, the owner must pay the Visa and Mastercard of this world an amount equivalent on average to 2.5% or 3% of the total amount of the bill. He also pays the various levels of government social security contributions imposed on the tip and the payroll.
This represents approximately 18% of the bill amount, according to François Pageau’s analysis.
To illustrate his point, Mr. Pageau presented us with a simulation. A total bill of $200 (before taxes and tip) will increase to $229.50 with GST and QST. If the customer tips 15%, or $34.43, the final amount to pay will be $263.93. Taking into account the 3% credit card fee – if the bill is paid this way – and the social benefits to be paid on tips and payroll (vacation, Quebec Pension Plan, employment insurance, etc.), the restaurateur will have to pay $24.20.
If the customer leaves an 18% tip, the amount the manager will pay is $25.64. If he gives 20%, it will be $26.60. If the consumer presses the 22% option, the restaurant owner will pay $27.57.
The professor is keen to point out, however, that his calculation is “based on average industry ratios and does not apply to all businesses in the same way.” He also does not take into account the provincial tax credit that allows for the recovery of 75% of the deductions at source that restaurateurs can claim on tips. According to him, not all establishment owners apply for it. This information is confirmed by the Association Restauration Québec (ARQ).
Please note that, on payment terminals, the total amount systematically includes taxes. The tip is then added by the customer. However, normally, it should be calculated before adding the GST and QST. So a consumer who presses the 15% option actually gives a higher tip. Several terminals offer options ranging from 18% to 22%. For some customers, it can seem complicated, even intimidating, to manually enter the amount they wish to give, we have often been told.
A delicate subject
Mr. Pageau’s conclusions are correct, according to the restaurateurs interviewed. “It’s mathematical,” acknowledges Pierre Moreau, CEO of Restos Plaisirs (Cochon dingue, Lapin sauté, Café du monde). “In Quebec, we are among the rare jurisdictions that pay social charges on tips,” he adds.
And in our restaurants, about 80%-90% of transactions are electronic. So we pay credit card fees and government fees.
Pierre Moreau, CEO of Restos Plaisirs
The subject nevertheless seems to create unease among several owners who do not want to raise the ire of their employees on the floor by, for example, programming payment terminals to offer lower tip percentages.
“We are not going to put 10%, 12%, 15%, because there, these are [les employés] “There are going to be complaints from service people,” says Eric Lefebvre, president and CEO of MTY, which has about 6,600 restaurants in North America, including chains such as Baton Rouge, Mikes and Thaï Express. “It’s their livelihood, so I can understand. What’s hard is finding a balance [pour les employés et pour les clients]. »
“Yes, it certainly costs us more money,” he admits, “but if the tip is high, it may mean that we provided better service, a better experience and that the customer is perhaps ready to come back. It costs us a few dollars more, but if it means that the customer comes back next week, we will also benefit as restaurateurs.”
Solutions
Based on this observation, François Pageau invites restaurateurs to program their payment terminals so that they only display the possibility of manually entering the tip.
It is also possible to ask your supplier to decide which tip percentages appear on the screen, Moneris confirmed in an email.
For its part, the ARQ is currently thinking about a way to “raise awareness among operators” on this issue and help them improve their profitability, explains its vice-president of public and government affairs, Martin Vézina.
We want to break the myth that when the tip is high, it suits the owner.
Martin Vézina, Vice President of Public and Government Affairs at the ARQ
Martin Guimond, owner of Brasserie Saint-Bock in Montreal, does not hide his discomfort with the high tipping options.
“It’s really insulting to the customer,” he says. “Right now, customers don’t have a lot of money. The machines could offer 13%, 17%, 20%.”
For Pierre Moreau, beyond the terminals, better profitability inevitably involves sharing tips between the kitchen and the dining room. A decision that only employees can make for the moment.
“Technology, minimum wage increases, cost increases, expenses. We think that tips should be split between the front of house and the kitchen. That will help us with kitchen staff retention and recruitment. Losing an employee and replacing them is extremely expensive.”
Payment Terminal: Some Suggestions for Giving the Right Tip
- Since the amount on the terminal includes taxes, a customer who would like to tip the server 15% can choose to manually enter 13%.
- By calculating the amount of the two taxes, it is also possible to arrive at the amount that is equivalent to 15% of the bill (before taxes). The consumer can therefore manually enter the tip he wants to give.
- Note that tipping 15% is a social norm, according to the ARQ. Nothing prevents a satisfied customer from giving 18%, 20%, or even 22%. It is also possible to give less in the event of bad service.