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New tipping trend hurts those who need gratuities most

You know a trend has attained critical momentum when it is assigned an easily recognizable moniker. Chances are this one has recently worked itself into your vocabulary: Tip creep.

It describes the phenomenon, especially noticeable since the end of the pandemic, of customers being prompted to add gratuities to tabs where previously there was no such expectation, like fast-food joints, liquor stores and even self-service establishments.

The proliferation of touch-screen payment tablets has accelerated since the end of COVID-19 lockdowns, allowing shops and establishments to solicit tips, usually by offering a choice of predetermined percentages. This trend has its own moniker: Tip trap.

And it is not restricted to the restaurant sector. With the new point-of-sale technology, tipping prompts are turning up everywhere, from movie theaters and carwashes to stadiums and airports. Many of these are small firms trying to pass on to customers the burden of inflation without increasing prices or salaries. In a tight labor market, some employers say allowing staff to collect gratuities is a way to prevent them from seeking other jobs.

The Wall Street Journal reports that 16% of the 517 small businesses surveyed by employee-management software company Homebase now solicit gratuities at checkout, up from 6.2% in 2019. Many places have always had tip jars, where satisfied customers could leave loose change. It would be one thing if the preset tips on the tablets were small, but they have tended to mirror the rates expected at full-service places – 15% to 20%.

This trend, too, has a name: Tipflation.

Of course, the tablets allow the option of not leaving a gratuity at all. But many customers say they feel emotionally blackmailed into tipping. A recent poll by Bankrate shows that 32% of Americans don't like predetermined tip screens, and more than twice that percentage have a negative view of tipping in general.

Inevitably, there’s a backlash against tip creep, and it seems to be hurting those who most depend on gratuities. Feeling obliged to tip in new places may also be one reason customers are cutting back on tipping where it was traditional. According to the Bankrate survey, 65% of Americans who dine at sit-down restaurants say they always tip their server, down from 73% in 2022, 75% in 2021 and 77% in 2019. There’s a catchy label for that, too: Tipping fatigue.

It comes at an especially bad time for the restaurant sector, which has been struggling to find workers since the pandemic, even as food inflation is leading to a spike in prices on menus. At the start of 2023, nearly 2 million restaurant positions were vacant. Those who might have filled them have other, better options in an economy where unemployment is low, and many sectors are paying well above minimum wage.

Most restaurants, meanwhile, pay their wait staff what is known as “minimum cash wage,” or MCW, and rely on tips to make up the difference with federal and state minimum wage levels. (Kitchen staff usually receive regular salaries in lieu of a share of the tips.) The federal Fair Labor Standards Act sets the MCW for workers who receive tips at just $2.13 an hour and requires employers to top this up with what is known as a “tip credit” of $5.12. States have their own MCW and tip credit thresholds.

“When people tip their waiter, they sometimes think they are rewarding good service, but what they’re really doing is enabling a person to get a living wage,” says Benjamin Sukle, the chef-owner of the highly rated Oberlin restaurant and Gift Horse raw bar in Providence, R.I. Those of us who eat out often usually know this, and it compels us to be more generous than is merited by the service alone; it’s called “guilt tipping.”

A wage increase won’t remove the tip trap, much less end the tip creep, but there’s a chance it may reverse tipflation. And at the very least, it will protect restaurant staff from tip fatigue.

Bobby Ghosh is a Bloomberg Opinion columnist covering foreign affairs.