'A hidden tax': Has America's tipping culture gone over the top?

When it comes to gratuities, the US has been a special case for decades - but has the practice now got out of hand?

Many think restaurant staff should be paid better by their employers but they were also irked by the array of businesses hustling consumers to pay a bit more. Photo: Vinnstock

US consumers are becoming increasingly disenchanted over the escalating cost and spread of tipping, a phenomenon that is becoming known as “tipflation”.

Americans are used to leaving tips of about 20-25 per cent at restaurants, but the advent of tipping screens at registers means they are being asked to cough up extra for regular goods too.

Earlier this year, 59 per cent of respondents to a Bankrate survey said they viewed tipping negatively.

They not only felt that restaurant staff should be paid better by their employers but were also irked by the array of businesses – coffee shops, snack bars and hairdressers – hustling consumers to pay a bit more.

“It feels like a record number of businesses are soliciting tips. Tipping has become a hidden tax,” Ted Rossman, a Bankrate senior industry analyst, said.

“Many companies are hesitant to raise prices further, given all of the increases we've seen in recent years, but asking for tips can essentially be a way for them to raise prices without acting like they're raising prices.”

When it comes to tipping, the US has been a unique case for decades.

Arguably it dates back to 1966 with the reform of the Fair Labour Standards Act, which allowed service workers to be paid a sub-minimum wage, with the rest made up from tips.

Currently, the sub-minimum wage is $2.13 an hour. Employers are, however, expected to make up the difference if the tips do not bring a server’s pay up to the federal or state minimum wage.

One impact has been that American consumers feel morally bound to be more generous tippers.

Michelle McGuire, former vice president of European operations for the Palm Restaurant Group, noticed the difference when she worked in London.

“When I moved to Europe, it took a good six months to understand the tipping culture. We realised many people wanted to work for us because of the Americans who would come into the restaurant,” she told The National.

“Tips were part of the culture there and so everyone tried to get a job with us at the Palm because they were making so much money on tips plus their pay.

“It was unbelievable once we realised that the tipping culture was drastically different. In the United States, the tipping culture is absolutely flipped over to the guest taking more of the responsibility.”

Tipping screens

The biggest bone of contention now appears to be the spread of payment screens at businesses that invite customers to add a tip.

To add insult to injury, a cut of the tip goes to the companies that provide the screen, which charge a commission on each transaction.

“I think during the pandemic this new payment interface was appearing in different places and businesses started asking for more tips,” Shubhranshu Singh, a marketing professor at Johns Hopkins University, told The National.

“The default tips minimum might have been 22, 24 or 26 per cent. That led to a lot of consumers getting confused and thinking this was the new norm.

Mr Singh said customers felt they had been tricked.

“They understood that 22 per cent was too much. Sometimes they felt they were being asked to tip in places where they did not expect, such as laundries, coffee shops and grocery stores,” he explained.

“They thought they should pay a tip and added it. We saw tips were being paid at unusual places and in larger amounts and we saw customers were not really happy about it.”

It has led to a trend known as “tipflation” and “tip creep”.

John Fusco of Ogunquit, Maine, spoke for millions of Americans when he voiced his annoyance at the spread of tipping beyond restaurants to places where the additional service is minimal.

“Well, it seems like they're not really providing any additional value to what they're providing me,” he told The National.

“So, I am a little bothered by the fact that they're asking me for additional money when the prices of things have risen quite a bit.

“As well a cup of coffee for $4 or $5. And, they're pouring the coffee and handing it to you. And then they turn the screen around and there's a $1.20 or $2.40 request for additional money.”

He said he felt that the companies were likely not paying their employees enough and were hoping tips would convince them to continue working there.

Tips crucial for servers

But for restaurant workers, tips are crucial, Daniel Dulong, a former server, told The National.

“I think they should get full minimum wage,” he said.

“Because on the essence of that, if you're not making enough tips to cover that minimum wage then you're not making a living.”

Even though some waiters can make a considerable amount of money from tips, the unpredictable nature of the income can make it hard to get a car loan or a mortgage.

And in many cases, servers are responsible for finding their own health insurance, which is expensive in the US.

Employers are supposed to report tips so they can be taxed. To simplify the paperwork, many establishments run a tip pool – a practice that annoys Mr Dulong.

“I completely disagree with it. Because if I'm working my butt off, and I'm doing a great job for customers I make my money – great,” he said.

“Well, I could have Joe or Susan over there goofing off being on their phone, and they average 10 per cent and I am getting 30 per cent, and we have to split it.

“They're making the same as much as much money as I am. But they are not working as hard or providing as good customer service.”