Tipping point - RED - Relevant. Essential. Denver.
A receipt shows suggested tipping percentages at a restaurant, with a minimum of 18 percent.

Tipping point

Economics and culture collide in tipping, a confusing tradition that shapes the U.S. restaurant industry — for better or for worse.

April 11, 2019

By Matt Watson

Two diners lock eyes, and one says those two magic words that signal a commitment of things to come: “Check, please.”

It’s a scene that plays out over and over again in restaurants every day. Servers bring checks to their customers, who then pay their food bill and leave a gratuity for the server that eventually pays the server’s household bills. If the server is lucky.

Tipping is optional and subject to customers' budgetary whims while simultaneously essential for servers’ survival. The practice is part of an agreed-upon social contract with no certain terms, yet it shapes an $800 billion restaurant industry — a few dollars at a time.

But as the U.S. restaurant and service industries face economic and social pressures to provide living wages to employees, the business of tipping is more contentious than ever, with some establishments increasing tipping suggestions and others eliminating the practice altogether.

“Tipping is socioeconomically driven,” said Bob Farmer, affiliate faculty member in the School of Hospitality, Events and Tourism at Metropolitan State University of Denver. “Our culture has traditionally been 15 percent, but (the service industry) faces all of these new economic factors, and we’re experiencing the unexpected consequences.”

Like many American traditions, the concept of tipping originated overseas. When European immigrants first spread the custom in the post-Civil War United States, there was so much pushback that several states outlawed the practice.

Back then, it was called "a cancer in the breast of democracy," "flunkeyism," "a gross and offensive caricature of mercy" and "offensively un-American," according to a deep dive on the history of tipping reported by NPR’s “The Salt.”

Today, the U.S. has the world’s highest tipping standards, Farmer said.

Hot tips

The service industry’s notoriously thin margins have been further shrunk by the Affordable Care Act’s health insurance mandates and popular movements raising state and local minimum wages, Farmer said. The shifting legal and cultural landscape has left businesses searching for new ways to stay profitable while providing appropriate wages and benefits for employees – and pleasing their customers.

“The industry has become more aggressive in seeking ways to reduce their operating expenses,” Farmer said.

But all too often it continues to fall back on the old standby: tipping.

Consider the check on your most recent meal at a restaurant. Did it suggest a tip for a percentage of your bill?

Instead of presenting 15 to 20 percent calculations, some restaurants are now suggesting up to 22 or 25 percent, Farmer said. Other eateries eliminate the 15 percent option, so customers have to do some extra math to tip less than suggested.

Some restaurants are experimenting with eliminating tipping altogether and building the cost of service into menu prices, he said.

Dinner is served at Degree Metropolitan Food + Drink. The downtown Denver restaurant is a part of MSU Denver’s School of Hospitality, Events and Tourism, providing students first-hand experience.
Dinner is served at Degree Metropolitan Food + Drink. The downtown Denver restaurant is a part of MSU Denver’s School of Hospitality, Events and Tourism, providing students first-hand experience.

Count Denver’s  Zoe Ma Ma and Abrusci’s Fire and Vine among the new breed of no-tip restaurants. While local eateries expand the experiment in cities across the country, the first national chain to eliminating tipping, Joe’s Crab Shack, abandoned its no-tipping policy in a matter of months.

Another strategy restaurants are using to reduce operating expenses is the elimination of service staff altogether, Farmer said.

“The traditional restaurant is going away,” he said. “You’re having to refigure the financial structure of your organization.”

In its place, the new restaurant model eliminates as much labor as possible. Customers now order at counters, seat themselves and toss their own trash.

“A restaurant used to have 50 seats with eight waiters and four bussers, but now you’re in there with four or five people, you fill out a card, hand it to the cook-slash-cashier, and go down the line with your tray. There are bussers but no wait staff,” he said.

Even in this model, customers should consider leaving a tip for those who bus tables, since they work quickly to turn over seats and clean up after you’re gone, Farmer said.

“The more direct, complete service there is, the higher the tip, with a minimum of 15 percent as the norm in the full-service restaurant,” he said.

All-American economics

Virtually every country has its own culture of tipping, said Farmer, who has worked extensively overseas in his professional career.

Many countries in the European Union have a standard of 10 to 12 percent gratuity, while tipping is not expected or is even considered rude in some Asian nations. Farmer recommends learning each country’s expectations before traveling or working directly with a liaison or agent in that country.

But here in America, the tipping system is likely too entrenched to go anywhere, said Alex Padilla, associate professor of economics at MSU Denver.

The competition for employees dissuades any one company from lowering potential earnings, even to provide a higher earnings floor, he explained. Consider the ride-sharing industry: Uber went from a non-tipping business model to encouraging tipping as it competed with rival Lyft.

“As an economist, I usually see tipping as a mechanism to ensure quality of service and to encourage employees to become better and be rewarded for their efforts,” Padilla said.

Smaller-scale efforts to even out wages in the restaurant industry, such as workers pooling tips to divide evenly or salaries in lieu of tips, lowers the earning ceiling for the top performers and decreases the incentive to provide the best service, he said.

When given the choice of a base salary or a variable salary based on performance, the best people often choose the variable option versus a flat higher salary, Padilla said.

“It’s an industry where people self-select – those who are good at serving and like people can make a lot of money,” he said. “It’s a cultural thing. Very much an American thing.”

Edit this Story