Every so often, societies should take a step back to reflect on cultural traditions that have led them down a hole that has become nothing short of anachronistic. Yet, climbing out of this inertia can prove nearly impossible for reasons that no one can seem to explain.
Take, for instance, Daylight Savings Time. Why is that still a thing? Everyone seems to want to eliminate it, but no one takes any action to do it.
How about explaining why pennies, nickels, and dimes are still being produced and circulated. Does that make any logical sense in this day and age?
Or what about the legal drinking age of 21? A person can vote, get married, have children, drive a car, serve in the military, smoke cigarettes, buy a home, buy a gun, work a job, and do literally anything else that is considered legal for adults to do, but American society had decided that 18-20 year-olds are not quite adult enough to handle a sip of beer? Nevermind that the vast majority of advanced countries have set a drinking age of 18, and some, like Belgium, Denmark, Germany, and Switzerland, are set at 16.
All of these are worthy of a discussion, but this blog post will focus on another baffling question: why do we allow the practice of tipping to supersede the need for employers to pay fair market wages to certain service industry professionals? Let’s dive into five economic hazards that this custom has created:
Tipping as a substitute for a fair, minimum wage leads to Income uncertainty, volatility, and opacity. The federal minimum wage in the US currently stands at $7.25 an hour, while the minimum wage for tipped workers is a mere $2.13 an hour. Restaurant workers earned just $3.83 an hour in tips, meaning they didn’t even reach the minimum wage that is set for every other profession. It is not surprising that several states are now moving to eliminate a separate tier for tipped workers. By relying on tips, workers are also subjecting themselves to uncertainty and fluctuation of income that most non-tipped hourly workers never have to worry about. How is it that we have allowed hospitality and service workers to endure not just the insult of low wages, but also the insult of not even knowing how much they might take home in pay each day?
The practice of tipping is arbitrarily applied to certain service professions, but not to others. Restaurant servers, bartenders, hairdressers, massage therapists, valets, taxi, and rideshare drivers, are among those included. Conversely, restaurant cooks, airport gate agents, physical therapists, pharmacists, retail store clerks, and bus drivers are not. Gig economy food delivery drivers are included, but package delivery drivers generally are not. Where was it decided that certain jobs should have deflated wages in favor of tips while others should not.
This line of who gets tipped can also be very confusing. Should hotel housekeepers receive tips? You’ll find guests quite divided on this one. Yes, most housekeepers work very hard and would appreciate some additional income. However, shouldn't their employers, which are generally large corporations, be able to afford to pay a living wage? Once one does decide to tip, what is a “fair” amount? Is it 10%, 20%, 30%, or more? From a consumer standpoint, if they have already paid several hundred dollars per night for a room, does that not include housekeeping service? Money is fungible. If a large corporation is able to reduce their staff’s wages because they receive tips, then isn’t your money simply flowing to the owners of the business at the end of the day?
The practice of tipping is becoming less “optional” by the day. One has to wonder what the purpose is of a gratuity if it isn’t really optional. A tip is practically demanded when dining in a restaurant, for example. The “guilt” factor alone is enough to coerce at least an 18-20% tip even for mediocre service. Moreover, tipping is no longer about altruistically supporting low wage service workers, but has become fully expected as a means for the worker to earn a basic wage. Those not receiving adequate tips to make a living wage are increasingly showing their discontent. There have been recent reports of Doordash drivers, as one example, providing slower service if they do not receive a sufficient tip upfront as part of the customer’s order.
Some restaurants now include “kitchen appreciation fees” and similar service charges. If these additional fees are required, then this means the restaurant is underpricing its food and cannot sufficiently cover its costs as a result. How about simply pricing food at an economically justifiable level to cover all direct and indirect costs, as is done in Europe and much of the rest of the world? At least service fees tend to be disclosed on the menu. Without full pricing transparency, including the firm expectation of at least an 18% tip, restaurant pricing becomes essentially a bait-and-switch that lures in customers by concealing the true price of the meal that they are purchasing.
While eliminating restaurant server tipping could lead to diminished service, ultimately it is the employer’s obligation to hire the right people and train them well. This is done everyday across the countless service businesses that do not rely on tipping to subsidize wages.
When and how much to tip is polarizing and confounding. In the 1992 comedy “My Cousin Vinny,” there is a scene where the lawyer Vinny comes to jail to visit his client-cousin behind bars, and tips a few bucks to the prison guard who escorts him to the cell. Hilarious as it seemed at the time, one would be forgiven for actually contemplating whether a tip actually would be appropriate in this case today. When and how much to tip is becoming increasingly unclear. Is it unfair not to generously tip a hard-working service professional whose wages may be inadequate to support themselves? On the other hand, why shouldn’t a $7 latte cover their salary for doing their job? Just because a consumer goes for takeout food, does that mean that “voluntarily” adding on another 20% must automatically be within their budget?
When I was a kid, a standard restaurant tip was roughly 15% of the pre-tax amount. Today, the expectation is for anywhere from 18-25% on the post-tax sum. Where is this inflation coming from? One has to wonder too about the logic of tipping on a percentage basis. Let’s take a restaurant server who pours a bottle of wine for the table. Do they do any more work if it’s a $100 bottle versus a $10 bottle? Moreover, point-of-sale checkout systems like Square and Toast are “in-your-face” about suggesting increasingly larger tips, getting up to the 30% range and even more. While it is ostensibly just a “suggestion,” is the customer not quietly coerced into leaving a big tip, even when suggested for simply picking up an order, where little actual service was involved?
Facilitates avoidance of corporate and personal taxes. Let’s be real about the use of cash as a form of compensation. While the law requires that employees report cash tips received, any form of cash can be elusive to track and record. There is nothing new about tax avoidance, but to the extent that it is far easier for tax agencies to trace and audit electronic records, the use of cash as a form of compensation keeps a window open to tax evasion that could easily be closed by reforming the practice. Cash tips that are not recorded by employers, if they go directly to the employee, also lets the employer off the hook for employment taxes and other benefits that are based upon the recorded wage.
Abolishing tipping would force the market to set a fair and predictable wage for its employees. It removes the burden and mental gymnastics for consumers to determine how much the staff who serve them will take home each night. If we, as a society, are to move beyond tipping, it needs to be implemented not by hoping for a cultural shift, but by decree. A single employer cannot unilaterally shift to full living wages and pricing transparency and expect competitors to follow. If competitors don’t join, then the first mover will be at a disadvantage when it advertises its prices, as they will invariably appear to be selling at higher prices than businesses that do not embed mandatory service fees or sell at prices that reflect the full cost to its clients and customers. When famed restaurateur Danny Meyer attempted to implement a no-tip policy through his Union Square Hospitality Group, the concept ultimately failed as customers were culturally not ready to shed the “guilt factor” of not leaving a tip. A shift like this can only come if implemented through a change in the law.
It is a fine line between honest tipping for service received and tipping as a tool for bribery, circumvention of paying a living wage, or an avenue for avoiding taxes. Ultimately, abolishing the practice of tipping is a matter of transparency. Transparency to the employee, the employer, the client or customer, and to the government and the general public. A belief in true democracy demands such transparency as a means of simply striving to be fair for all. The implementation can only work if society shifts together as a collective for the greater good.