January 14, 2010

Why Do We Tip So Much?

I usually tip 20% on my bill when we eat out. I do this because thats the system we have. I tip lower if I get crappy service. Usually my low end tip for sub par service is 15% and maybe down to 10% if they are particularly bad. I feel I'm pretty generous with the tips. I can only remember one time that I left no tip and that situation was very warranted in my mind.

Overall I don't really like the system of tipping that we have in the USA.  I certainly don't have a problem with people making money.  Its just that the system we have just seems arbitrary to me. If you work at McDonalds you get minimum wage and no tips. If you work at a buffet you might get sub minimum wage and minimal tips. If you work at any restaurant that serves food then you are expected to get sub minimum wage plus 15-20%. So 3 different people doing basically the same job get none, some or most of their wages via tips.

I do think that people who work in restaurants should get a decent wage, but I just don't like the structure of the tipping system.

I also don't like the fact that tipping is a % of the cost of the meal. If I order a $25 steak then I'm supposed to pay $5 for the waiter to write my order down and hand me the food. But if I buy a $5 burger then writing that down and bringing it to me is only worth $1. Doing the same amount of work gets different pay rates simply based on the nature of food I order.   Of course the counter to this is that the service level and expectations at a fancy restaurant are higher so the compensation should be higher.

Tipping rates have increased over time for some reason. This report on tipping has a bit about history of tip rates. They cite references from 1895, 1928 and 1937 that said that 10% was the established standard for tips at the time. Then they have a 1984 reference stating 15% tips were typical and by 1997 someone mentions the figure moving to 20%. This MSN article from 2008 states 20% is the new 15%. So in my lifetime tipping has gone up at least from 15% to 20% and I am pretty sure I remember the range being 10-15% when I was younger. I don't know when we went from 10% to 15% for the minimum and it might have actually been before my time. Why have tip % rates increased? You might argue its to keep up with inflation but the price of food has been going up so tips would go up too. Why did we as a society decide that we should pay waiters 100% more over the past 100 years?

The system isn't even consistent from state to state due to differences in minimum wage laws.   In 7 states wait staff gets the full minimum wage. My state is one where wait staff gets the full minimum wage which here is over $8. So its not like most states where servers earn $2.13 per hour plus tips. They get over $8 as the minimum and tips are all on top of that. My sister used to average $15 an hour in tips at a smallish family restaurant with average price food back about 20 years ago. I can only imagine what people pull in at more expensive restaurants here nowadays.

Would service suffer if we had less dependence on tipping?   One argument for tipping is that it gives the servers an incentive to work harder.   I'm not sure how well tipping works as a reward or incentive for good work.  It seems that servers have the expectation that they'll get 15-20% in tips and if they don't then the customer must be a cheapskate.  If we tip people 15-20% all the time then they aren't really seeing much feedback on their performance and the status quo is that they get 15-20% in tips.  For tips to be a good incentive for performance we'd have to have better and clearer feedback.   In Europe they do not have much tipping that I've seen and in my limited travels there I didn't see bad service from wait staff.

 I would much prefer if we had less dependence on tipping and just had higher base wages.  

Photo by Unlisted Sightings


  1. I totally agree. I've worked in a restaurant before and honestly, if you don't get excellent service, then you don't have to tip well. Servers nowadays just expect to be tipped even though they don't offer great service. My rule is I tip what I feel.

  2. Even worse is when they just tack on the tip to the bill (e.g. for a party of 6 or more people). At that point, it seems more like a tax, rather than a voluntary tip.

    But for the voluntary cases, well, the distinction between places you tip and places you don't do not seem so arbitrary to me: you don't tip if it's self-service, as is the case at most fast-food places.

    I guess there are different grades of service: (1) McDonalds: you get no service at all; (2) Carl's Jr.: they at least bring the food to you; (3) Sizzler's and most full service restaurants and diners: they bring the food, refill drinks, and take away plates at the end.

    It's probably not so arbitrary that you would tip at (3) but not at (1) or (2).

  3. Byung, You're right about the mandatory tipping for large parties. That is one of the things that makes the least sense.

    I see your point about McDonalds not being the same kind of thing as a restaurant like Sizzlers. And you're right, they don't do the exact same job. But they both work in food service yet have very different wage structures.

  4. Wow some of you are really in the dark about tipping! The reason that there is gratuity added to large parties is very easy to understand: First, a server will likely have to give up their other tables to take care of your party. People gathering together for an occassion are very high maintainence. Second, servers declare 10% of their sales so if your party has a $500 bill automatically the server is taxed on $50 tip (even if they didn't receive any tip). Third, do you ever see anyone else helping your table out (food runners, bussers, bartenders and even some kitchen jobs) are tipped out by the server based on a percentage of the sale so even if you don't tip, the server still pays the busser for cleaning up after you. Lastly, how many times to cheap people "forget" to tip? It happens all of the time and a server cant pay for you to eat. Automatic gratuity is rarely over 18% and it is usually calculated before tax. If you tip well, the automatic gratuity is never an issue; and if you don't tip well, this automatic gratuity is to protect the server from people like you.

  5. Mandatory tipping is an oxymoron. Its like mandatory volunteering. Thats why it doesn't make sense. Making it automatic is contrary to the whole idea of tipping.

    How about we just make it automatic across the board and not have tipping? Thats my preferred system. If it makes sense for a group of 6 or more then it makes sense for a group of 5 or less as far as I'm concerned.

    You only legally pay taxes on actual tips. Lets not pretend that servers dutifully report 100% of their tips cause we all know that is not the reality for the industry. Sure there are honest individuals who report it all but I've never met one.


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