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Financial Wellness

A New World of Tipping

It's a familiar experience: requests for restaurant tips are becoming more common, and requests for tips themselves are getting larger. Additionally, consumers are confused about encountering new tip screens at businesses that didn't previously ask for tips. Or asked for tips in situations that they haven't in the past—or weren't expecting,

Chances are, you've noticed more and more businesses asking you to leave a tip—from coffee shops and airport kiosks to ball parks and self-checkouts.

The expanded opportunity to tip for a wider range of services than ever before is referred to as "tip creep." Previously limited to table service restaurants, delivery services, salons, and other similar establishments; tipping has widely spread out to other industries. The term "tipflation" is the trend of being asked for more money. These newer developments are causing tension among consumers.

  • A study by Capterra, a software service firm, 58 percent of consumers believe that restaurants have increased their minimum suggested tip.
  • A recent Bankrate survey shows that roughly two in three (66 percent) U.S. adults have a negative view about tipping.
  • The Capterra study shows half of consumers reported feeling "manipulated" into tipping on a tablet during checkout over the previous year.

How did we get here?
Tipping is making media headlines. It can be a contentious topic. 

Historically, tipping is ingrained in North American dining culture, with roots dating back to the Civil War. However, outside of North America about half the countries in the world avoid tipping practices. Tips are not expected. As a matter of fact, it's considered rude to tip in some countries. 

The coronavirus pandemic bought tipping practices to the forefront. Workers began leaving during the Great Resignation. Consequently, restaurant owners desperate to bring in talent had to increase wages to keep up with to the labor constraints. That spurred these new type of technologies that increased the bottom line. Businesses shifted to digital point-of-sale systems, adding tips to payment screens on tablets and kiosks. Making it easier to tip than ever as the tipping process melded with the payment process.
First tip prompts, now surcharges
Make way for another way you're being charged—with service fees and surcharges. These fees, which typically range between 3% and 5%, are catching on at restaurants across the country. They may be intended to cover health insurance, inflation, credit card transactions or even tap water. 

Because tipping is regulated stringently by federal law, practices such as tip pooling and tip sharing became problematic. So many establishments have gone the surcharge route to cover expenses. Jeff Galak, professor of marketing at Carnegie Mellon University's Tepper School of Business says "Fees are a way to raise prices without raising prices."

What the experts say
So how do we all navigate this new world of fees/tipping and what's behind the seemingly massive shift in tipping culture? There are some services where you definitely don't need to tip at all. You certainly don't need to tip your landlord, for instance, or your plumber or a flight attendant.

Though most diners don't like the added expenses, these new service fees are likely here to stay, according to the National Restaurant Association. As negative sentiments have arisen, more business owners are scaling back on suggested tip amounts or eliminate tip prompts entirely to appease customers. According to Molly Burke, senior analyst at Capterra, "Small businesses can deactivate the tip screen or customize the amounts they show on the tip screen or just ask customers to skip it." 

The future of tipping is rooted in technology, government policy, and public opinion. Workers' wages across many industries haven't caught up to the rise in the cost of living. Realistically, making $2.13 (the current standard for wait staff) is not a living wage. And studies show that restaurants do not always follow tip credit laws and pay employees the amount needed to earn federal minimum wage if tips are not high enough. Should the customer be picking up the difference?

According to Money magazine, "When deciding whether to leave a tip, some experts suggest considering whether a worker relies on tips for income. In the case of a cashier, they might not. Baristas and bartenders, on the other hand, often rely on tips as a significant portion of their paychecks."

Resources: CNBC Television, 7shifts, Pew Research Center, the U.S. Department of Labor