Every week we comb through the news to find employment trends affecting the hospitality industry so you don’t have to. This week’s topic: earning tips vs raising minimum wage.
To tip or not to tip
Across the United States, it’s customary to leave a tip for the server or bartender when dining at a sit-down establishment as a way to compliment great service. But saying ‘thank you’ isn’t the only purpose for leaving gratuity – it’s how food service and hospitality industry professionals make a livable wage.
Under federal (and most state) laws, employers are permitted to pay workers less than minimum wage if they receive enough tips to make up the difference. For example, if a server is making $5/hour, they must make an additional $2.25/hour to meet the current federal minimum wage of $7.25/hour. This process is called a “tip credit” and is allowed by employers in most states. (To see laws for tipping employees by state click here.)
While employers can take small portions (2-3%) of the tips due to credit card processing, the additional money earned goes directly to the employee, unless tip pooling is allowed. Tip pooling is when employees are required to share a portion of their tips with non-tipped employees such has hosts or bussers. In March 2018 the Fair Labor Standards Act clarified the issue of tip pooling by stating “employers that do not take a tip credit and pay employees the full minimum wage may establish a tip pool that includes back-of-house employees. However, employers that do take a tip credit must limit the tip pool to employees who customarily and regularly receive tips.”
If you talk to any industry worker who makes tips as a living, they’ll tell you this system is either great, or extremely flawed. Servers and bartenders can leave a shift on a profitable night making 5-10x the minimum wage, or barely scraping the minimum wage.
A huge part of tipping is the social aspect. While there is no set requirement for tipping, the standard tip for good service is 20% of the bill. Some customers figure out what to leave by doubling the tax. Some believe in leaving a couple bucks, or nothing at all. In most cases, it depends on what you were taught is a customary and fair tip. While it is the responsibility of the employee to provide service deserving of a sufficient tip, it’s still up to the customer to tip accordingly.
Countries outside of the United States have various regulations for tipping based off region. In some places such as the Netherlands, gratuity is included in the prices of meals, so customers aren’t required to pay extra. In other places such as the United Kingdom, Ireland, or Russia, guests will round up the bill or tip 5-10% to account for lower wages, but there isn’t a large “tipping culture”.
Currently restaurants across the country are looking to raise minimum wage so tipped employees are less reliant on gratuity, which can lead to wage theft and harassment.
Whether your establishment is considering making the move to a higher wage or maintaining a tip credit, it’s apparent that this discussion is only gaining steam, and will be one of the biggest challenges to the industry in 2020 (and beyond).