Tipless in Seattle: Part 1 - Gathering the Data

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It's surprising that the current debate about raising the minimum wage to $15 per hour nationwide is still controversial, when $15 per hour is not nearly enough to live in many places in the United States.

On top of that, a huge proportion of minimum-wage jobs rely on tips.

It's been well documented that tipping, a practice grounded in racism and sexism, does not correlate with performance or merit in any predictable way. Studies have shown that tip amounts reflect bias in terms of race, gender, and physical appearance, reinforcing social inequity, and inviting harassment and abuse.

In this series of posts about how Seattle Coffee Works went tipless in 2017, I hope to share the positive effect that eliminating tips from our wage structure had on our company. And encourage other companies to do the same - for your own good!

As expected, going tipless evened out some glaring inequities among our team members. Surprisingly, it also turned out to be one of the best business decisions we've ever made - both for our team and for the business as a whole.

At the time, we had no template for how to transition away from tipped work. We had no option but to jump right in. Going tipless one of the most exciting and scary moments in our company's history. (Before covid, that is.)

Overnight, we had to nearly double the hourly wages for our team members who had previously received tips, and raise our prices on all coffee drinks by as much as 20%. Our payroll expenses jumped 50% compared to the prior month.

This is Part 1 of 3 of the story of how we did it, what went well, and what didn't. Please stay tuned for the two sequels:
2. Identifying Pain Points
3. Solutions

We hope others can learn from this experience, including avoiding some of our mistakes. Good luck, and enjoy the jump!

Part 1: Gathering the Data

The Basics

Of course, before eliminating tips, we had spent months in careful research and planning. We were prompted to think about this by three developments:

First, our new point-of-sale system had increased tips substantially during certain parts of the day;

Second, the dramatically increased cost of living in Seattle was making it difficult for our team members to afford rent;

Third, wages in Seattle were increasing due to legislation and competition.

An analysis of our sales data and tips recorded during 2016 showed:

  1. tips were sometimes paid in cash, and most of the time by credit card
  2. 73% of credit card transactions included a tip on the card
  3. $1.17 was the average credit card tip per transaction (on an average transaction of less than $10 = on average 16% of the transaction amount was paid as a tip)
  4. recording and reporting of cash tips was inconsistent

In 2016, the total amount of tips run through our point-of-sale registers amounted to almost 21% of the entire payroll for the year. Clearly tips were an important source of income for our team members, and yet they were also a big sticking point for our entire company.