In the early days of the post-Covid era, Aidan Demarest, director of Nightlife at the Sofitel Hotel in Beverly Hills, saw consumer tipping increase. “People were so grateful,” he says, “for smiling faces and food made by someone else that they tipped generously….Gratuity is the response to gratitude.”
This succinct observation goes to the heart of what tipping should be. However, gratitude is just the literal “tip” of the iceberg. In today’s ever-evolving hospitality business, the basic concept of tipping itself has become a sort of magnifying glass on the state of hospitality culture. Not only does it illustrate how inequitable pay structures make it a struggle for employees to achieve a living wage, but it also shows how employers need to address the issue for the health of their businesses and their workers.
Once upon a time, tipping was not the contentious topic it is today, at least until it reached our shores. The practice itself can be traced back to the Middle Ages as part of the master-serf dynamic; it carried over in later centuries to the customer/server relationship. In 17th century England, it’s thought that a “T.I.P.” stood for “To Insure Promptitude,” but that seemingly logical acronym appears to be a convenient myth. Tipping eventually made its way to the United States around the time of the Civil War when wealthy Americans thought it posh to emulate their sophisticated counterparts across the pond.
More liberal thinkers called tipping “slave wages” because tips were used as an excuse not to pay workers (frequently Black ones) a decent wage. Others said it was un-American, claiming it imposed the sort of inherent class structure that Americans had left Europe to escape. Anti-Tipping movements emerged for a brief time; some states even abolished the practice. However, by the 1930s, hospitality unions organized to protect workers and insure a living wage for their members.
In the ensuing decades, tipping became an accepted courtesy, supplementing hospitality workers’ salaries. Unions gradually disappeared as most of these jobs became part-time positions. Today, despite the re-emergence of unionizing, these jobs still often pay below minimum wage and offer few to no benefits, thus making it crucial for employees (many full-time or working multiple part-time jobs) to take in tips to sustain a living. Back in 2015, Danny Meyer, owner of the Union Square Hospitality Group, announced that he was getting rid of tips and instead raising menu prices with the intent of promoting a living wage.
As life returns to a new, post-Covid normal, tipping structures are changing in a myriad of ways. Perhaps ironically, even Meyer returned to the practice of tipping in 2020 but also instituted a shared tipping policy where tips were divided evenly amongst all staff, both front and back of house. Many restaurants and bars now do the same, but, in other cases, it has become commonplace to see a flat service fee – ranging from three to as high as 20 percent – tacked onto one’s bill. The reasoning is that this fee is meant to supplement wages and employee benefits as well as contribute to general operating costs. All of these factors have created a sort of generalized tip fatigue in many sectors.
For the customer, these fees are confusing and even irritating to say the least, especially because they are not considered a “tip.”
Sarah Mengoni, a bar and beverage consultant who works with InterContinental Hotels Group, has noticed that a large number of guests actually tip on top of the service fee. “Maybe people are just so hardwired to tip,” she explains, “that they feel like they’re doing something wrong if they don’t write something in.”
Demarest hasn’t seen any tip fatigue in the luxury sector, but guests still react with surprise when there are unexpected charges on their bill. “The only pushback I hear occasionally is that [the customer] didn’t know there was a tip already included,” he says, “or they wanted to tip of their own accord.” As for the future of tipping, he says, “I do think the auto gratuity will reduce back down to large parties and luxury hotels as it was pre-Covid; then we will return to ‘Free Market’ tipping in the rest of the hospitality sector. Although frightening to the industry people already very used to it, I do have faith in people’s ability to tip well and often when the service merits it.”
While service fees often cause customer push-back, the gradual emergence of tipping prompts on both physical and digital checks has caused further backlash. This is particularly the case in to-go and fast-casual establishments where tips have never been the norm until recently. But, argues Peter Dougherty, general manager of Hospitality at Lightspeed Commerce Inc., these prompts can also be helpful.
As a unified sale and payments platform that services both fast-casual and fine dining establishments, Lightspeed employs data tracking to observe these new developments. “Being able to simply click a tipping percentage of choice,” says Dougherty, “provides guests with better end-to-end service, versus having to do the math or pull up an app to calculate the desired tipping amount. The prompts include options to leave less or no tip at all, so the automated process simply streamlines the ‘checkout’ experience, while still giving guests a complete range of choice.”
The evolving ease in the tipping process benefits employers as well. “As we near almost 100% digital saturation,” notes Tal Clark, CEO of Instant Financial, “organizations will have no cash on hand to pay their staff. This would lead to a significant increase in costs for organizations needing to ‘purchase cash’ to pay their staff tips.…To keep costs down, they’ll need to adopt digital tipping solutions that allow them to pay their employees’ tips electronically, creating a seamless digital connection between tips paid by customers to tips paid to employees at the end of their shift.”
Despite the continued growth of tipping prompts in hospitality establishments, there is still a vast range of tip amounts. Lightspeed’s data shows that servers at bars and fine dining establishments, which tend to offer an “experience” factor, take in the highest tips, almost 20%. In contrast, fast-casual locations and take-out venues – where it’s less about experience and more about quick service -- tend to elicit substantially lower tip amounts, generally below 9%.
Regardless of an establishment’s tipping practices and the reactions of customers to it, tipping won’t be going away any time soon, in the opinion of Ross Simon, owner of the bars Bitter & Twisted and Little Rituals in Phoenix. “I definitely think tip fatigue is a thing,” he acknowledges, “especially when services are provided outside the hospitality sector or in situations where tipping hasn’t been customary before and customers have to wonder what they are actually tipping for. And I think it’s a valid question.”
Still, Simon doesn’t think that tipping will be going away, at least not any time soon, because of our country’s long-standing “tipping culture” that rewards exceptional service.
Today, “to tip, or not to tip” remains a contentious question for customers, whose choices have a profound effect on a business’s success. And so, the hospitality industry continues to seek answers; hospitality-serving companies provide streamlined, trackable solutions; and customers mull over how to respond.
With tipping prompts and service fees, the landscape is, for now, rocky at best. The most essential elements will be the grace that employers show their guests in contending with these changes, and the general inclination of guests to reward service. Granted, that simple act of gratitude as Demarest describes it is far more complicated today. But, as the hospitality industry continues to evolve, we can strive to achieve a certain parity for guests, employees, and employers alike.
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