Why are you suddenly being asked to tip more? It could be because workers are getting more expensive.

Chipotle now offers digital tipping at its stores “as part of our ongoing effort to enhance our crewmember benefits,” CEO Brian Niccol said in an April earnings call. Previously, the company relied only on physical tip jars at its stores.Photo by Brandon Bell/Getty Images

  • More and more businesses are asking customers to tip.

  • It’s driven in part by the spread of digital payment technologies that include prompts to tip workers.

  • But some companies could also be turning to tipping to avoid paying their workers more.

If you feel like you’re being asked to tip everywhere you go, you’re not alone. More businesses are asking you to chip in, and experts say it could be in part to help pay their employees.

In addition to the waitstaff at restaurants, customers are now being asked to tip for food delivery, rideshare drivers, fast food workers, mechanics, and even when they use self-checkout machines at cafés, sports stadiums and airports. It comes as many of these businesses have raised wages in recent years in an effort to fill job openings.

“It’s absolutely the case that many employers prefer tipping to paying adequate straight wages to employees,” Ben Zipperer, senior economist at the Economic Policy Institute, told Insider, adding, “the entire cost is paid for by the customer when workers have to rely on tips for wage increases.”

In addition, Mason Jenkins, clinical assistant professor of marketing at the University of North Carolina at Charlotte, pointed to the spread of digital touchscreen payment systems as a key driver of the expanded tipping requests and said that adoption can be contagious.

“The more that managers see other retailers requesting tips, the more likely they will incorporate it as well,” he told Insider. “The phenomenon also works for consumers as well. The more that consumers see the person ahead of them in line tipping for counter service, the more that we think it may be a norm and the harder it is to resist.”

Americans disagree on what to make of the rise of tipping. On the one hand, no customers are required to tip, and if tipping provides a way for workers — many of whom are earning low wages — to get some extra cash, it could be a good thing. But as leisure and hospitality businesses get squeezed between inflation and rising worker pay, some argue that customers shouldn’t be responsible for helping them pay workers a living wage. Experts told Insider it seems that’s what a lot of companies are asking for — and many customers are not happy about it.

 

 

Workers are getting more expensive, and tips help cover the cost

Businesses relying on tips to help pay their workers is far from a new phenomenon — particularly in the restaurant industry. But in recent years, tipping has spread further into American culture, according to Michael von Massow, associate professor of food Economics at the University of Guelph in Ontario.

“Historically, tipping has been reserved for restaurant serving staff, taxi drivers and hairstylists,” he wrote in a guest post for The Conversation in January about the state of tipping in North America. “Now, other industries like fast food, retail outlets and even mechanics,” he added, “are offering tipping options on sales terminals to encourage — or pressure — customers into tipping.”

One potential reason service businesses are warming up to tipping is that they’re under particular pressure to keep labor costs in check.

In recent years, many service businesses have struggled to attract workers and been forced to raise pay considerably as a result. Rather than raise wages even further to fill remaining job openings and keep existing employees satisfied, some businesses may be tempted to embrace tipping as a no-cost way to get their workers additional pay, Laurence Kotlikoff, an economics professor at Boston University, told Insider

“Businesses are being squeezed and hoping that their customers will, in effect, be willing to pay more on a voluntary basis,” he said regarding the rise in tipping options.

Today, it’s still legal to pay tipped workers as little as $2.13 per hour in the US, well below the federal minimum wage of $7.25 per hour.

While businesses who roll out tipping may be able to appease their employees for a while, Kotlikoff said he doesn’t think this will last.

“They are asking their workers to take a gamble on earning more on average with higher variability,” he said. “This may work for a bit, but when workers get tired of too many bad tip days and customers get tired of too many companies asking them for bailouts, things will flip back.”

And the dissatisfaction could grow further if some workers find out they’re not able to pocket all of the new tips they’re seeing, said the University of Charlotte’s Jenkins.

“Businesses should provide more transparency about where shoppers’ tips are actually ending up,” he said. “Anecdotally, I have heard from consumers who were surprised to hear from the concession workers at concerts and sporting events that any tips they end up with go to management.”

Are you a business owner, service worker, or customer with a view on tipping culture? Reach out to this reporter at [email protected].

May 24, 2023: This story was updated to clarify Mason Jenkins’ title and employer.

Read the original article on Business Insider

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