YOU DECIDE: Businesses at a Tipping Point

Posted by on Aug 18, 2023 in Economics, Stuff You Should Know, You Decide!

Imagine you’re buying a cup of coffee at a local cafe. A server brings the coffee to you.  When you pay for it, you give an extra amount, called a gratuity or a tip, to the server. This is a common practice in places like restaurants. But lately, consumers have noticed greater expectations for tips.   

Prices Are Rising 

Why are requests for tips on the rise? Let’s start with expenses. People are spending more money on what they buy at businesses like restaurants. This is not necessarily because they are buying more items but because of a process called inflation. Inflation means that things are getting more expensive over time. Inflation can impact prices of finished goods, ingredients, food, and wages. Rising prices can also impact how much money employers have available to pay their employees. 

putting money in tip jar
Tipping is more than putting money in a jar these days.

Tipping Benefits for Businesses 

Inflation greatly impacts business owners. For example, if the cost of making your cup of coffee increases, the cafe owners might need more money to pay the expenses associated with making it. As a result, the price of that cup of coffee will go up. Inflation has increased the cost of equipment, utensils, ingredients, and rent. Business owners, too, are expected to pay their employees more for the work they do.  

Some business owners have installed touch screen tip options at checkout. These new opportunities for tips can be advantageous to business owners. This is because higher amounts of tips for servers can reduce owners’ need to raise wages. Tipping has become a way for servers to receive more money from customers without the owners’ raising prices on goods or services. 

The Worker’s Perspective 

Employees who receive income from tips often get lower average wages compared to other types of workers. The tip income is used to increase a server’s wage to more closely equal non-tipped employee income. So, tips are not generally a bonus for most workers. For many servers, their tips make up 10 percent to 20 percent of what they earn.  

Servers have mixed feelings about the increased demand for tips. Some appreciate the measure taken by their employers to provide opportunities for tipping. Yet, others are upset that they often experience the majority of customers’ frustration at the increased demand for tips. This often results in customers leaving smaller tips or even no tip at all. When a customer refuses to tip, the server is the one who loses money. Tips can help servers make a little extra money and feel appreciated for their efforts. But, like many workers, servers wish they didn’t have to rely on tips to make a decent living. 

What Can Customers Do? 

Customers can be thoughtful when deciding whether to leave a tip. If they think the service was great, a tip can show appreciation. Customers can also support businesses that treat their workers well and that explain up front how they handle tips. This way, their money can help those who work hard and make sure they’re treated fairly. 

What Do You Think Is it fair for businesses to rely on customer tips to pay part of employees’ wages? Take the poll question below! Then explain the impact of this practice on both servers and customers and propose alternative ways that businesses could manage expenses and employee compensation. Provide examples from the text to support your perspective. 

Should businesses increase tipping opportunities to help keep their expenses low?