By Zia Saylor
You've probably experienced it a hundred times: after paying for a coffee or lunch, the screen asks if you want to add a tip. The increased demand for tips at coffee shops and lunch counters may leave you wondering: what's the deal here? Do workers actually receive the tip you provide? Does it boost their income in a meaningful way?
While the federal minimum wage is $7.25 an hour, Indiana, along with sixteen other states, has a separate, lower minimum wage for tipped workers of $2.13 an hour that has remained unchanged since 1991. Indiana classifies anyone who earns over $30 per month in tips as a tipped worker, and their hourly payment is lower with the argument that the rest can be made up in tips from customers. Employers are supposed to make up the difference between the tipped wage ($2.13) and the federal minimum ($7.25) if the tips don’t fill that gap. However, a study analyzing data from the U.S. Department of Labor found that approximately 84% of investigated restaurants violated tipped wage policy, cheating workers out of roughly $5.5 million in total wages.
The pandemic exacerbated several facets of tipping culture, with customers failing to tip based on the enforcement of public health measures or the demographic characteristics of the server (particularly race and gender). Because so much of the worker’s pay relies on those tips, this creates a system in which social perceptions of the worthiness of someone’s time–often based on stereotypes or preferential treatment–controls their actual wage and livelihood. Given the origin of tipping as a means of race, class, and gender oppression, it is no surprise that this system perpetuates such inequalities, yet it also puts workers at risk by disempowering them in the workplace. In the post-pandemic era, service workers have faced an increase in harassment, yet receive fewer tips and lower tip amounts. Workers must then decide whether they will tolerate abuse or forfeit a tip.
The issues impacting tipped workers have spread across industries thanks to the increased prevalence of screensprompting customers to tip, pushing more workers above the $30/month threshold for being considered a tipped worker. How electronic sale terminals have shaped the tipped workforce is an area of ambiguity, as workers aren’t categorized within U.S. Bureau of Labor Statistics data as explicitly tipped or not (most estimates come from aggregating specific industries widely considered “tipped”), leading to different interpretations of tipped populations and inconclusive estimates.
The spread of the tipped wage will further harm workers during this time of inflation, particularly impacting those along lines of historical inequalities. Already in Indiana, nearly one in five female tipped workers (18.7%) lives in poverty, with higher rates of poverty for women of color. The median hourly wage received by a waiter/waitress is $10.97, which is impossible to thrive on and means that over 80% ($8.84) of that is reliant on customer tips. Hoosiers working as bartenders receive a slightly higher median hourly wage ($10.90), while Hoosiers working as coatroom attendants receive a lower median hourly wage of $8.46. Nationwide, estimates suggest that 25% of the youth workforce (ages 16 to 24) works in tipped sectors, meaning that they will face difficulties in building up savings for success later on when so much of their wage is reliant on conditional goodwill.
So how do we create a more fair system and protect our tipped workers? Indiana does offer one protection to tipped workers to offset some of the inequality created by the tipped wage: a tip pool, in which all restaurant or business employees (other than management) that contribute to the production of the service are eligible shared tips. This reduces income disparities between front-facing and behind-the-scenes jobs that are also typically gendered and racialized. In other key legislative areas, however, Indiana falls short: while anything marked as a tip legally has to go to workers, mandatory service charges do not necessarily go to workers, andany associated credit card fees can count against wages/tips earned.
Solutions to this issue are simple: eliminating the “tipped wage” would prevent a gap between tipped and untipped workers and reduce the power imbalance that clientele hold over workers. Seven states (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington) already do this, andstudies indicate lower turnover rates, higher employee morale, unchanged tipping amounts left by customers, consistent restaurant prices, and even increased growth of restaurants. Beyond elimination of the tipped wage, however, Indiana should close more legal loopholes, particularly around the deduction of credit card fees from wages, and ensure enforcement of tipped worker protection.
How can you take action? Within Indiana, contact your state representative and state senator and let them know you want to see equity in wages. You can also join the Indiana Community Action Poverty Institute mailing list for updates on legislation that would remove unfair systems such as the tipped wage. At a national level, One Fair Wage offers a petition to give all workers access to a fair and untipped wage that meets their needs. They also offer a list of restaurants that do engage in worker-friendly practices so that you can support places that invest in their employees. Lastly, One Fair Wage offers resources for restaurant staff and managers on how to engage in worker-friendly practices and ensure that everyone is allowed their legal working rights.
Curious to learn more? Read our policy brief on tipped wages.
FAQs
Because so much of the worker's pay relies on those tips, this creates a system in which social perceptions of the worthiness of someone's time–often based on stereotypes or preferential treatment–controls their actual wage and livelihood.
What are the negative effects of tipping culture? ›
Tipping culture in the U.S. causes wage disparities between different occupations and industries. According to the U.S. Department of Labor, tipped employees often earn significantly less than the minimum wage. The lowest minimum wage for workers who rely on tips in the U.S. is $2.13 per hour, known as a cash wage.
How does the minimum wage affect income inequality? ›
The minimum wage has been regarded as an important element of public policy for reducing poverty and inequality. Increasing the minimum wage is supposed to raise earnings for millions of low-wage workers and therefore lower earnings inequality.
How does tipping affect the economy? ›
Tipping allows businesses to effectively charge different prices based on what customers are willing to pay. People who are rich or generous or like great service tend to pay big tips; others who are on tight budgets or are price-conscious or just cheap tend to give small tips or none.
What is the effect of the tipped minimum wage on employees in the US restaurant industry? ›
PRO: More employees get to walk out with tips regardless of their role. CON: This policy can make payroll more complicated because you still need to ensure everyone is being paid minimum wage in addition to tips.
What is the controversy with tipping? ›
With the current high cost of living, cash-strapped consumers are starting to resent these tipping prompts. In fact, according Bankrate, 66% of U.S. adults have a negative view of tipping and 30% feel that tipping culture has gotten out of control.
What culture is it offensive to tip? ›
For example, in China, tipping is considered rude and can make someone feel embarrassed in the restaurant industry. It was even banned in the past as it was seen as a form of bribing. However, today it's expected for other professionals like tour guides. Japan does not have a culture of tipping.
How does wage inequality affect people? ›
Excessive inequality can erode social cohesion, lead to political polarization, and lower economic growth. Learn more about the inequality, its causes and consequences and how the IMF helps countries in tackling inequality.
What is the inequality with wages? ›
The bottom 90% received just 58.6% of all wages in 2021, the lowest share on record, and far lower than their 69.8% share in 1979. From 1979 to 2021: Wages for the top 1% and top 0.1% skyrocketed by 206.3% and 465.1%, respectively, while wages for the bottom 90% grew just 28.7%.
Has wage inequality increased? ›
Inequality in hourly wages increased substantially in the 1980s. Since then, wage inequality across most of the distribution has stabilised, as measured by the 90:10 ratio (the Gini coefficient continued to rise due to rising wages at the top, albeit at a much slower rate than in the 1980s).
On the one hand, it can encourage better service, supplement low wages, encourage friendly and personal service, and make dining more affordable. On the other hand, it can lead to unfair treatment, create an unpredictable income, create a power dynamic, and create a culture of underpayment.
Does tipping increase inflation? ›
Tipping is a curious practice. It is optional – yet done – in spite of its undesired inflationary effect. During the pandemic, the central bank lowered interest rates, a move traditionally undertaken to incentivize consumers to buy things like cars and houses.
Does tipping actually improve service? ›
A consumer rewards better service with a higher tip, and worse service with a lower tip [15, p. 5]. Restaurant customers could be buying future service with tips. Sometimes a customer regularly patronizes an establishment where his or her tipping behavior becomes known.
How do tips affect a workers wage? ›
According to California Labor Law, employees who receive tips as part of their job can be paid a lower wage when compared to the minimum wage required to be paid by other employers. The number of cash wages you are paid as a tipped employee, however, can vary depending on how many people are employed with the company.
How much does a waitress make an hour without tips in USA? ›
A tipped employee typically receives more than $30 per month in tips, according to the Department of Labor. Tipped employees must receive a minimum wage of $2.13 per hour, known as a cash wage. That cash wage is combined with tips to reach the federal minimum wage of $7.25 per hour.
What state has the highest tipped minimum wage? ›
Tipped wages by state for 2024
| State | Minimum wage rate per hour | Maximum tip credit per hour |
|---|
| New York (Tipped Service Employees) | $12.50 | $2.50 |
| North Dakota | $4.86 | 33% of the applicable minimum wage ($2.39) |
| Ohio* | $5.25 | $5.20 |
| Oklahoma | $2.13 | $5.12 |
28 more rowsPoor service. You're never obligated to tip someone when they've provided you poor service or if you've had a rude interaction with them. In the case of a one-on-one service, such as a haircut, this is pretty cut and dried.
Why is tipping rude in Japan? ›
It is in the Japanese culture to take pride in your work. As such, employees have the highest standards when supplying a service and don't feel the need to accept tips to feel appreciated. To the Japanese, attempting to give a tip suggests their employer does not value them enough to offer sufficient pay.
What are the cons of no tipping? ›
Cons Of A No-Tipping Policy
In order to pay everyone on staff a fair wage, restaurants will have to raise the prices on their menu or add a service charge. Raised prices can lead customers to order less food or visit an establishment less frequently.
Has tipping culture gone too far? ›
The survey paints a clear picture of consumer unease. A staggering 76.1% of repsondents believe tipping culture has gone too far, up from 66% last year.
