The practice of tipping in America has been around for well over a century, but it remains a controversial topic. Employers, customers, and tipped workers continue to debate how much to tip and who deserves a tip. But the biggest debate is whether or not we should do away with the practice of tipping altogether.

The truth is the majority of Americans want to get rid of tipping, but they are concerned about the workers in tipped industries making ends meet. Tipped workers are notoriously underpaid, often well below minimum wage. Instead, they must rely on customers to voluntarily overpay for products and services in order to make a living. Because of this, tips no longer represent generosity from the customer. Instead, they are essential to workers and demanded of customers.

But when employers pay their workers a living wage, tips are no longer mandatory. Tips are then a bonus given at the delight of both the giver and recipient. Instead of relying on customers to pay for products, services, and wages, employers should take strides to take care of their employees financially. This can be done by paying a living wage and providing financial education to help workers effectively manage their wages.

History of Tipping

The history of tipping in America has some troubling roots. It dates back to the 1800s in the post-Civil war era when employers didn’t want to pay Black laborers. Instead, employers offered them unpaid positions where the customers could choose to pay them with tips. The Takeout states, “Tips became a loophole for American restaurants to not have to pay their employees, particularly minority workers, because tips from diners subsidized their wages. As a result, this subminimum wage became an acceptable norm for tipped employees.”

But despite great strides for equality in the United States, this practice has been perpetuated for over a century. Still today, the federal minimum wage for tipped workers is only $2.13. And these industries typically employ a disproportionate number of women and minorities. In a New York Times article, Michelle Alexander shares her own experience realizing how outdated and unfair the practice was of working for tips instead of wages. “It was fundamentally unjust for me to earn less than the minimum wage and to depend on the good will of strangers in order to earn what was guaranteed by law to most workers.”

While some industries fought for standard wages with tips on top, not all tipped industries changed. Alexander continues, “Restaurant workers, however — who were mostly women — were not so fortunate. The unjust concept of tips as wages remained in place for them. And in 1938, when Franklin Roosevelt signed the nation’s first minimum wage into law, it excluded restaurant workers.” Sadly, not much has changed in the last 85 years.

Tipping Culture in America

The United States is one of the top ten wealthiest countries in the world. The median salary is $69,000 per year, which is approximately $34 per hour. So why is it still legal to pay employees $2.13 per hour and expect customers to make up the difference?

Tipping used to be associated with generosity and excellent service. Now it is an expectation associated with social anxiety. The Washington Post says, “There is so much wrong with the American system of tipping. Where once tipping may have been a reward for superior service, it is, in reality, a diner tax used to guilt-trip patrons into supplementing workers’ wages.” Tipping should be a sign of generosity, something the giver can feel good about, knowing they’ve adequately shown their appreciation for good service. But when tips are a worker’s only source of income, it becomes mandatory and takes the joy out of giving. When tipping is an expectation, it’s no longer personal for the giver or recipient. When employees make a living wage and don’t rely on tips to make ends meet, a tip becomes a happy bonus instead of a desperately expected necessity. 

Because tipped industries typically employ a high proportion of women and minorities, establishments that allow their workers to rely solely on tips inadvertently further income inequality. In an article on Eater.com, Kathryn Campo Bowen says, “The case against tipping is compelling: It facilitates racism, sexism and widespread wage theft; perpetuates a growing income gap between front- and back-of-house staff, particularly in cities like New York and San Francisco; and contributes to a stigma that service work is transitory.” In the same article, Amanda Cohen says, “No matter how you do it, tipping hits BIPOC workers in the pocketbook, it exposes more female workers to sexual harassment, and it keeps all workers from making a steady, solid salary.”

Fair Wages

In the restaurant industry specifically, profit margins are slim and it can be hard to pay workers a fair wage. But from a cultural value standpoint, customers can see the system is flawed. In his podcast, Cameron Navarro says, “I don’t want to support a system that requires businesses not to pay people just so they can start a business. To me, that’s not right.” 

In every other kind of business, the company uses its revenue to pay employees. But in tipped industries, the customer pays for the product or service, plus employee wages on top of that. In her podcast Life Is Work, Danielle Stenger says, “Instead of the employers paying workers for their work, they rely completely on the customers to do so…When we pay for products, there’s got to be a profit so that they can pay for labor, but that’s something the employer figures out. But in tipping culture, that’s not true. The labor and the cost of the product is completely on the customer.” This is hard on both the customer and the worker. The Washington Post says, “In a fair-wage world, pay isn’t left up to the tipping whim of customers. You order a sandwich, and the cost includes everything it takes to hand it over to you.”

The challenge for tipped workers lies in more than just unpredictable income. Not only do tipped workers rely on unreliable wages, but they also face more harassment since the customer determines their pay. But when employers provide fair wages, the workers have more control of their environment. Michelle Alexander says, “Women restaurant workers in states with subminimum wage report twice the rate of sexual harassment as women working in restaurants in the seven states that have enacted One Fair Wage — a full minimum wage with tips on top. The women in these seven states — California, Oregon, Washington, Nevada, Montana, Minnesota and Alaska — can rely on a wage from their employer and are not as dependent on tips and thus feel empowered to reject the harassment from customers.”

Financial Education

Shifting from tips to full wages will not be easy. The biggest challenge for businesses that have made the change is in the time it takes for others to follow suit. It takes time for things to change. In the meantime, one of the most beneficial things employers can do for their employees is offer financial education. Financial education is essential for tipped workers who often have unpredictable income. It helps them learn to manage income fluctuations, prepare for emergencies, and use their money effectively.

Consumers are getting “tip fatigue” and it’s a very real concern that tips will decline. What will happen to service workers then? Without financial education, income fluctuations can pose real financial problems that can lead to unhealthy financial behaviors. Workers who are living paycheck to paycheck might struggle when one paycheck (or tip total) is unexpectedly smaller than usual, and might resort to taking on debt to make ends meet. These kinds of unhealthy financial behaviors create a cycle that can be difficult to break out of, especially as the cost of living increases and tipped wages decrease.

Employers who provide access to financial education help their employees improve their quality of life. Employees can use financial education to get out of debt, bank smarter, build credit, and budget effectively. Find out how 101 Financial’s Workplace Wellness program helps employees manage unpredictable income.

Conclusion

Changing tipped industries will not happen overnight. Many individual businesses, specifically restaurants, have adopted fair wages and no-tip policies. But it will take time for entire industries to make the shift. The no-tipping movement first started in 2015 when many restaurants and similar businesses adopted alternative practices. Now, in the post-pandemic era when businesses are making an extra effort to ensure income equality, the no-tipping movement is expected to gain more traction.