The Truth Behind Tipping Culture: Who Truly Benefits?

Written by Ishi Sharma on October 1, 2023.

The food service industry is largely relying upon customers to pay their employees rather than doing it themselves. It’s called tipping, and the federally recognized “tip credit”.

    The Department of Labor states that under section 3(m)(2)(A) of the Fair Labor Standards Act (FLSA), rather than directly paying minimum wage to their workers, employers can combine tips with their employees’ direct wages to meet the minimum wage requirement. This practice can drop direct wages as low as $2.13 for tipped workers, called the subminimum wage. To summarize, the FLSA says that while their hourly wages must still meet the $7.25 minimum, tipped workers’ wages can be comprised of both employer pay and customer tips. This seems almost contrary to what most regard as the point of tipping–to give the server an extra reward for good service, rather than making up for what their employer isn’t willing to pay them. But how did we get to a point where tipping is so common that it became federally recognized in the first place?

    According to NPR, the history of tipping can be traced back to the feudal system of the European Middle Ages. Because of its feudal roots, Americans viewed it as un-American, with its “aristocratic” and “demeaning” nature. After the Civil War, however, tipping really started to take off. Due to the addition of former slaves to the American workforce, restaurants were having trouble paying all the newly-hired workers. Luckily, tipping was there to help give those workers their liveable wages. Since then, it has become much more heavily ingrained into our society, especially during the COVID-19 pandemic.

    Modern-day tipping has evolved from a 15% tip for an excellent server at a sit-down restaurant to a 20% for the barista who poured your morning coffee. During the pandemic, tipping norms began to change even more. CBS News writes, “Retail industry employees and other essential workers were seen as putting their own health, and even their lives, on the line to serve customers, more than earning an extra monetary reward.” Many businesses reacted by instituting point-of-sale (POS) technology like Square and Toast with pre-entered tip percentages to supposedly make tipping more convenient for customers. But after COVID, it seems that the more pervasive tipping culture is becoming, the more customers are retracting back to and even beyond pre-pandemic tipping norms.

    Consumers are now beginning to suffer from  “tipping fatigue”. Combined with inflation, many are mentally and/or financially exhausted from being asked to tip everywhere, for everything, all the time. This phenomenon has had some damaging effects: In a 2023 Bankrate Survey, it was revealed that the “frequency of U.S. adults tipping has declined steadily since 2019”, and that “66% of Americans have a negative view of tipping.” Tipping–which was once supposed to function as a way to compensate food service workers for good work–may actually be working against them because of the stigma surrounding the culture nowadays. In fact, according to the Economic Policy Institute, tipped workers are more than twice as likely to suffer from poverty than other workers.

    So then, who does tipping actually benefit? The answer is simple: the industry. In all but seven U.S. states, tip credits are used as an excuse to pay employees less than a livable wage and make the customers believe it’s their fault for not tipping enough to fill the gap. Some tipped workers themselves also believe this, as evident in NPR’s interview with barista Dylan Schenker who feels demoralized when customers who do not tip don’t seem to care enough about his situation to help him “make a living”. But the customers too have bills to pay. Why should they be responsible for the paycheck of someone they haven’t employed? To gain a little perspective, it’s important to note that employees in other countries are rarely as dependent upon gratuities for making a living as American employees are, says BBC. Tipping may even be considered offensive in some countries, such as Russia, China, and Singapore. This means that tipping has become yet another concept that the U.S. has made it’s own in a not-so-constructive way.

Only in America, we have guilt tipping.