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Why you should refresh your tipping policies

Editorial Team

7 min read
tip jar

Data from 2020 shows that 15.6 million restaurant employees in the United States are dependent on tips for their salary. The hospitality and food service industry is one of the biggest employers in the country, but with shutdowns and Covid-19 health and safety restrictions, many restaurant jobs have been lost, furloughed, or scaled back. According to federal data, restaurant and bar employees accounted for 25% of jobs lost (that’s 5.9 million jobs) at the height of the pandemic.

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History of tipping in the U.S.

Tipping in the United States became codified in 1865 at the end of the Civil War. Employers would hire Black workers as waiters and porters without pay, aside from customers’ tips. Essentially, this was a workaround to avoid the official label of slavery. It took 73 more years for the law to provide some measure of equality with the Fair Labor Standards Act (FLSA), a 1938 law requiring employers to pay a small base wage that, combined with tips, equaled the minimum wage. Under the FLSA, a restaurant can leverage what’s called a “tip credit,” where the tip amount can be credited against the minimum hourly wage, as long as the resulting collective amount remains equal to the state-mandated minimum wage. This system, which can effectively lower the minimum hourly wage to as low as $2.13 per hour and decrease the restaurant’s financial responsibility toward its workers, is currently in use in Washington D.C. and 43 of the 50 U.S. states.

Though tipping has a long history of creating social and financial inequity, it has also become an ingrained part of the restaurant industry. Despite its unsavory beginnings, tipping is a lifeline for many workers. But during this pandemic, many employees who depend on tips have been faced with a roller coaster of constantly fluctuating wages. This heaps extra stress on hospitality workers, making them almost entirely dependent on the tipping whims of their guests.

Tipping during the Coronavirus pandemic

In the beginning of the pandemic, people wanted to support their local establishments, and many diners assumed that the shutdown would be a temporary, short-term disruption. Although guests historically tip for takeout and delivery at a lower rate than for sit-down meals, many people reported giving higher-than-usual tips when picking up or accepting deliveries. A recent Eater poll in Detroit found that 70% of diners said they were tipping more than before the pandemic, an increase of 10% from a similar survey Eater conducted in the spring when 60% of diners said they were tipping more. 

But as the pandemic stretches into its seventh month and there’s no clear end in sight, restaurant owners and employees are reporting a distinctly gloomier tipping landscape than the self-reporting by diners. Workers in the food and beverage industry struggle with a number of connected factors that have significantly lowered their take-home pay:

  • Many restaurants have closed for good, leaving fewer jobs available for food service employees. Restaurants that have been able to re-open and bring back employees have limited hours and staff. Nearly half of restaurant employees who have returned to work reported working 10 hours or less per week. Workers are struggling with health and safety concerns, often bearing the responsibility of enforcing safety protocols for guests. Since tips depend on a guest’s perception of the restaurant’s ambiance and service, many of the restrictions have noticeably dampened diners’ enthusiasm for eating out. Plus, many guests still don’t feel comfortable with any sort of in-person dining, preferring to stick with takeout and delivery. Unfortunately, in some regions, restaurants that are open are also struggling to find staff willing to take on hours, further complicating the situation. 
  • Sixty-five percent of service workers report that since they returned to work, their tips have halved, while 40% have lost more than 70% of their previous tips. As restaurants reopen, seating capacities are significantly slashed. Outdoor dining is subject to the whims of weather and air quality. As a result, each waiter has significantly fewer tables and guests to serve.
  • In addition, many diners are struggling with their own job losses, salary cuts,  and the loss of supplemental pandemic unemployment funds.Thus, their own budgets have shrunk, significantly reducing their tipping generosity.

What restaurateurs can do for their workers

Owners are caught in a difficult position as they try to adapt to the constantly changing landscape of regulations while continuing to serve delicious food and drinks, satisfy their guests, and treat their employees fairly. 

Here are four things to consider to help your employees who depend on tips:

  1. Raise the base rate and/or eliminate tips.
    Since Renee Trafton opened Beak Restaurant in Alaska, she has insisted on a gratuity-free experience. Instead, her menu prices reflect the outstanding service she knows her team delivers, and allow her to provide a living wage. She found that in Alaska, where business slows down in the winter, it was important to guarantee a consistent paycheck to her employees. As a result, she has been happy with the quality of workers she has been able to attract. 

    Some municipalities, including New York City, have passed legislation that allows restaurants to add a 10% Covid-surcharge to the bill, with the expectation that participating restaurants will then tack on the extra payment to servers’ wages. There is also the option of raising prices without noting the allowed surcharge, and using the additional revenue to raise employees’ base wages.
  2. Seek input from your team.
    Your employees can be a great source for suggestions for how to weather the loss of tips. 

    Many servers and bartenders still prefer the tipping system, earning more than they would on some guaranteed-salary systems. Before making changes to your tipping policies, ask your employees about their experience and their suggestions.
  3. Change the way you distribute tips.
    As a result of new restaurant capacities and policies, employees may find their share of tips significantly reduced.

    Your state may allow tip pooling. If so, waiters, delivery people, and cooks might prefer to share all or a portion of their tips. Doing so can help even out tips across different shifts and between different roles within the establishment (front/back of house, delivery staff, etc.) With the abrupt cessation of business lunches and dinners, many restaurants find that previously busy shifts are now significantly slower. However, waitstaff, who bear the brunt of dealing with guests may feel reluctant to share their tips. 

    In lieu of tips, some restaurants structure their pay as a percentage of shift sales to both servers and kitchen staff. This way, the entire team is incentivized to sell more. The key, as always, is constant and respectful communication with your team before making any changes. 
  4. Keep as much of the profit and tips in-house as possible.
    Third-party delivery apps take a significant cut of revenue and encourage guests to tip their drivers rather than your staff. Consider switching to Clover Online Ordering, which adds no extra charge for the merchant or the customer, and also has contactless payment, which helps ensure safety for all parties. As a bonus, it can cut down on phone orders, taking some of the pressure off your already busy front-of-house staff.

    If you are choosing to allow diners to add tips to their final bill, Clover systems allow four default percentages from the total percentage of a sale. Having pre-set tip amounts encourages guests who may have previously skipped tipping to consider tacking on a gratuity to help your staff.

People in all aspects of the restaurant industry are struggling. Staff wants to earn sustainable wages, owners and managers want to maximize revenue, and guests want to enjoy quality meals with great service at affordable prices. The pandemic has certainly made it more difficult for restaurants and their employees to thrive. But, by working collaboratively and streamlining business practices, it’s still possible to offer your team a sustainable wage in food service and hospitality.

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