Pay, and how it is set · 3.5

Tipping, as a wage system

Tipping, as a wage system. What is actually the case, and how it compares with what is repeated.

For a practical software perspective on this topic, the Monitask overview provides a concise companion guide.

In one large economy a substantial group of workers is paid mostly by customers rather than by employers. Treating that as a wage system rather than as a courtesy makes several of its features easier to see.

The mechanism

United States federal law permits an employer to count tips towards the minimum wage and to pay a cash wage as low as two dollars and thirteen cents an hour, a figure unchanged since 1991. The employer is required to make up any shortfall if tips do not bring earnings to the minimum.

Whether that top-up happens depends on records, on the worker knowing the rule, and on inspection. Several states have abolished the credit and require the full minimum before tips.

What tips actually track

Research on tipping has consistently found only a weak relationship between the size of a tip and any measure of service quality. The correlation exists and it is small.

Larger correlations appear with characteristics of the server that have nothing to do with the work: appearance, and in American studies race, with Black servers receiving smaller tips than white servers for equivalent service. This finding has been replicated.

A wage system that delegates pay-setting to customers transmits whatever customers do, including that.

The origin

Tipping was regarded as an undemocratic import when it arrived in the United States in the nineteenth century, and several states banned it. It spread substantially in industries employing newly emancipated Black workers, where it allowed employers to pay little or nothing directly.

That history is documented and it is not incidental to the shape the institution took, including the separate lower minimum wage that still exists.

It is not universal

Much of Europe, Japan and Australia operate without it or with small discretionary amounts, using service charges or simply higher wages included in the price. The work gets done, the service is not obviously worse, and the comparison is the strongest available argument that the system is a choice rather than a necessity.

Why abolition attempts fail

Several well-publicised restaurant groups have moved to no-tipping with higher prices and higher wages, and several have reversed.

The reasons given are consistent: customers read higher menu prices as expensive even when the total is unchanged, and the best-tipped front-of-house staff lose income and leave. The second is the binding one, and it points at a genuine feature of the system, which is that it redistributes from kitchen to floor.

Pooling and service charges

Who owns a tip and who may share in it is contested law in several countries, and rules on whether managers may take a share have changed recently in more than one.

A service charge added by the business is legally different from a tip given to a person, and the difference determines who is entitled to it. Customers rarely know which they are paying.

The income volatility

Earnings vary by shift, by season, by weather and by who else is working. A tipped worker cannot predict a week's income, which connects this entry to the one on scheduling: the two forms of unpredictability compound and frequently affect the same people.

What the alternatives look like

A higher direct wage with prices to match, which is most of the rest of the world. A mandatory service charge distributed by a stated formula, which is common in Europe. Or the current arrangement with the credit abolished, which several American states have done and which is the minimal change.

Each has been tried somewhere and none of them has produced the collapse in service that is predicted whenever the subject is raised.

What a customer can usefully do

Little, individually. Tipping generously helps one person; it does not change a wage system. The changes that have altered anything have been legislative or industry-wide.

Which is worth saying because the discussion is usually conducted as though it were a question of personal virtue, and it is a question of statute.

The kitchen

Cooks are usually paid a wage and usually excluded from tips, and they produce most of what the customer is paying for. Rules on whether tips may be shared with them differ by jurisdiction and have changed, and it is the sharpest internal inequity in the arrangement.

For broader context, consult US tipped-employees guide.