• Megan M

Rethinking Your 20% Tip



Tipping in America originated during the post-civil war era around 1865. Over 150 years later, the practice remains commonplace – but with laws and standards that put consumers in a state of unquestioned tipping. This article will clarify the wage laws of tipped employees and venture into how 20% became the accepted standard. It may make you rethink your 20% tip.


Modern Day Practice

When dining out, the act of tipping is generally a no-brainer. The question is not whether to tip but whether to tip 15% or 20%. Some default to the 20% for ease of the math. Some default to a percentage suggested on the receipt. Some are simply subjected to the imposed gratuity of dining with a large party. Whatever the case may be, most of us are accustomed to tipping without thinking twice. But having entered this mindset of unquestioned tipping, are we missing part of the story?


Tip Laws

Let’s start with the laws around tipping. According to the Department of Labor, the current minimum wage for tipped employees is $2.13 per hour. This $2.13 was set forth in 1997 as an amendment to the original Fair Labor Standards Act (FLSA) of 1938. (The FLSA is also responsible for enacting a federal minimum wage of $7.25 per hour in 2009). However, we should take caution viewing that $2.13 at face value. If an employee’s tips fall short of bridging the gap between the $2.13 and the federal minimum wage of $7.25, their employer is required by federal law to supplement their wage of $2.13 with the amount required to reach $7.25. Let’s break this down.


Kate is a server making a wage of $2.13 per hour, plus tips. On her Tuesday night shift, she comes up short and only makes $5.10 per hour in tips. So, her wage of $2.13 plus her tips of $5.10 equals $7.23 per hour. Since $7.23 is less than the federal minimum wage of $7.25, Kate’s employer is required to pay her the difference, which is 0.02 cents per hour in this case.


The way this process works is through a “tip credit”. Employers can claim employee tips as “tip credits” that contribute to meeting the federal minimum wage requirement of $7.25. The way the system is currently set up, the act of tipping is essentially having paying customers subsidize tipped workers’ wages.


There is the argument that tracking tips is difficult to execute, given that some tips can be cash, and therefore paying employees the difference in missing wages is not faithfully practiced by employers. This is a valid argument of logistics that goes beyond the laws themselves.


How Did 20% Become the Accepted Standard

Moving on to the actual tipping process – how did 20% become the accepted standard? A common reference for tipping 20% can be tracked to The Emily Post Institute, which sets forth etiquette standards. That 20% is further reinforced by the suggested gratuities printed on restaurant receipts that can range from 15% to 25%. But there’s little financial evidence as to whether that 20% is an appropriate value for the consumer. The consumer doesn’t see restaurant profits or total tips received by an employee so it’s difficult to judge whether a 20% tip is appropriate.


In fact, the suggestive nature of tipping by printing gratuity options on receipts may be more insidious than we realize. The suggested gratuity can be inflated by calculating the tip amount from the after-tax value of a meal instead of the pre-tax value. Or on split checks, the suggested tip amount can be calculated from the full check amount instead of the split amount – The Olive Garden and The Cheesecake Factory are both perpetrators of this practice. Although, some patrons have taken notice. In 2017 a class action lawsuit was filed against The Cheesecake Factory for the deceptive practice.


The Morality of Tipping

Knowing the laws of tipping, perhaps the biggest question becomes one of morality: is it right to ask customers to subsidize employees' wages through tips? The minimum wage for tipped workers hasn’t changed in over 20 years and the federal minimum wage hasn’t changed in 10 years. Something there doesn’t seem right. Should the consumer bear the burden of fair pay instead of the employer?


The pressure of tipped workers’ wages is placed on the customer. Similarly, the outrage of low tipping is taken out on the customer. It might be time to shift that accountability to the restaurant industry. Danny Meyer, owner of Shake Shack and various acclaimed New York restaurants, is a good example of a restaurant owner taking responsibility for fair wages by eliminating tipping. In 2015 he removed tipping and replaced it with slightly higher menu prices to pay all workers equally, ensuring back end kitchen staffers were paid the same as front end servers. On the customer side he calls it “hospitality-included”, where the dining experience is bundled into one price and tipping need not be thought about. Although menu prices increased, he removed discretionary tipping responsibility placed on the customer.


Where to Go From Here

As customers become more vigilant about the wage laws, the act of tipping becomes voting with your dollars. While there may not be a simple answer as to whether tipping is right or wrong, there are tipping laws, restaurant practices, and consumer behaviors to scrutinize. If you’re questioning the accepted tipping standard and wondering why fair wage responsibility isn’t placed on the employer, then it might be time to rethink your 20% tip.


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