Round Table: Tipping is Out of Control in the US

How bad is it really?

The issue of excessive tipping in the U.S. is becoming a significant concern for many. A Pew Research Center survey highlights that a broad majority of Americans feel the expectation to tip has expanded to more areas than before, with 72% stating that tipping is expected in more places now compared to five years ago. This increase in tipping expectations, coupled with uncertainty about when and how much to tip, suggests a significant shift in the nation's tipping culture. Interestingly, while there is a broad consensus against businesses suggesting tip amounts or including automatic service charges, the public's tipping behaviors vary widely depending on the service context, indicating nuanced views on the practice. This issue is multifaceted, involving technological nudges, societal expectations, and economic pressures.

Voices

"Digital Payment has made it worse": One significant driver of the frustration is the ubiquity of digital payment methods, which often prompt customers to leave a gratuity at places where tipping was not traditionally expected. This includes fast food restaurants, grocery stores, and even online retailers. Consumers are finding themselves faced with suggested tip amounts that can be as high as 30%, a practice that has become more irksome amid rising prices due to inflation. The visibility of digital tipping options creates a social pressure that is hard to bypass, leaving consumers feeling coerced into tipping even when they might prefer not to or when the service does not warrant an extra charge.

"Tips are vital for us": From the perspective of service workers, tips remain a significant supplement to their income, helping cover essential expenses like rent. Workers like baristas, who traditionally rely on tips to supplement their wages, argue that tipping is essential for ensuring fair compensation for the services they provide. They highlight the disparity in perception of tipping, pointing out that customers who can afford luxury items like pricey coffee drinks often balk at the idea of leaving a small tip, which can be demoralizing for regular service providers.

"Gen Z is furious": The discontent is not without nuance. There is a recognition that tipping has reached a saturation point, with calls for a reevaluation of the expectations placed on consumers. Survey data reflect a broad discontent, with significant percentages of Americans feeling that tipping has gotten out of control, especially among younger generations like Gen Z, who feel the most pressure to tip and are the most likely to reduce their tipping when traveling outside the United States.

Can't the restaurant owners simply compensate their employees more?

The question of why restaurant owners can't simply increase wages to replace tipping is complex and multifaceted. Here are a few reasons:

1. Economic Constraints: For many restaurants, especially small and independently owned establishments, profit margins are very thin. Increasing wages significantly could mean increasing menu prices to cover these costs, which might deter customers in a competitive market.

2. Cultural Expectations: Tipping is deeply ingrained in the U.S. dining culture. It's seen not just as a way to compensate servers but also as a direct feedback mechanism for the service provided. Changing this system requires altering customer and worker expectations, which is challenging.

3. Tax Implications: Tipping can have tax implications for both employees and employers. For employees, reported tips can contribute to their overall income and social security benefits. Employers might benefit from certain tax credits related to tipped employees. Altering the tipping system could affect these dynamics.

4. Operational Adjustments: Switching from a tipping model to a higher wage model would require significant operational adjustments, including restructuring payroll, possibly changing pricing models, and navigating new labor relations dynamics.

5. Market Competition: Restaurants compete not just on food quality but also on price. Raising prices to cover higher wages might make a restaurant less competitive, especially if nearby businesses continue to use the tipping model.

6. Variable Compensation: Tipping allows for variable compensation based on the number of customers and the level of service provided. It can be an incentive for employees to provide high-quality service, as their earnings directly correlate with their performance and customer satisfaction.

Solutions Proposed

One suggested approach to addressing the issue of "out of control tips" involves customers being more aware of how much employees make, which can help determine if and how much to tip. With digital kiosks often suggesting a 20% tip regardless of the service level, there's a shift in expectations away from tipping based on service quality. Consumers are advised that they have control over when, where, and how much to tip, and they can always choose a custom amount that feels appropriate to them. It's about sending a message that consumers won't be pressured into tipping more than they're comfortable with.

Many also suggested the abolition of tipping in favor of a fair wage for all service workers, to ensure their income doesn't depend on customer discretion, which can be influenced by various biases. This suggestion aims to address the system that allows businesses to pass labor costs onto customers and makes labor laws complicated due to the tipped minimum wage