How many times have you stared at your bill at the end of a meal and wondered, "how much should I tip?" There are so many invisible factors that go into determining whether that server gets 10, 15 or 20%. Perhaps the waitress wasn't friendly enough, or the waiter was way too friendly. Maybe the food was late, or maybe you're not sure whether to tip on drinks, knowing most places inflate alcohol prices by 400% to outweigh the costs of a liquor license. For the less mathematically-inclined, this after-dinner math problem can also be exceedingly stressful – armed only with a phone calculator and the "suggested tip" section on the check.
In America, tipping is the most common and culturally-accepted way to pay servers in the U.S., with food service tips amounting to over $20 billion a year and accounting for almost 100% of servers’ take-home pay.
And, for these U.S. servers, tips are essential: Food Servers make a median annual base salary of $26,818 and Bartenders, $20,021 per year. These salaries float very close to the federal poverty level; so clearly, for these workers, every tip counts.
The Tipped Wage
The federal minimum wage is currently $7.25 per hour, unchanged since 2009. Naturally, some states have higher (and lower) rates, ranging from $5.15 in Wyoming (provided certain federal regulations don’t apply) up to $13.50 in Washington state.
However, waiters and bartenders, or really any tipped employee, do not fall into these same categories. The federal minimum wage for tipped employees is a shocking $2.13 per hour. You see, while the federal minimum wage was raised in 2009, the minimum wage for tipped workers did not increase – and has remained unchanged for over 20 years.
The Bureau of Labor Services estimates that bartenders make, on average, $10.43 an hour. Waiters and waitresses in Hawaii, DC, and Washington state reported the highest median hourly wages (with tips) at $21.77, $17.48, and $16.29, respectively. The lowest median for waiters and waitresses hovered around $7.84 for servers in Puerto Rico, Wisconsin, and Tennessee. This wide variance might be due to the states’ general population density and cost of living expenses.
A Great Debate
Recently, with D.C.’s Initiative 77, there has been talk of raising waiters’ and bartenders’ hourly rate to give them a living wage – essentially eliminating tip culture for servers. Seems like a no brainer, but this has been met with great controversy for good reason. There are many factors to consider when thinking of making the switch from a tip culture to a wage culture. Let’s take a look at both sides' arguments to get a fully-rounded view of the issue at hand:
In Favor of Tips
In Favor of a Living Wage
|Some American servers and bartenders, particularly those working in upscale restaurants, greatly enjoy the tip-based system because it allows them to earn hundreds of dollars in cash on busy nights. (For instance: a 20% tip on a $400 meal could result in an $80 tip – and that’s just one table!) Some servers in places like New York City can even make a whopping $100,000 per year. A living wage might actually force these successful servers to take a pay cut.
||On the flip side of the coin, servers working in unpopular restaurants or dive bars may not be reaping the same rewards – struggling to make ends meet with a $2.13/hour salary and very few tips. To make matters worse, some employers have been known to, allegedly, misuse or misreport tip credits, or even steal tips from their servers. Notably, several years ago, disgraced celebrity chef Mario Batali was forced to return over $5 million dollars in skimmed tips to workers in his NYC restaurants.
|While female servers receive less money in median hourly wages, compared with their male coworkers, they actually rake in more tips than their male counterparts. Women only make 77 cents for every dollar earned by men, but this statistic does not seem to apply to the hospitality industry – in no small part due to tipping.
||The restaurant industry generates five times the average number of sexual harassment claims per worker, which may be attributed to a power imbalance between tippers, who are typically male, and servers, 70 percent of whom are female.
|Many argue that tips motivate the server to provide better service. Tips are a form of variable compensation and most customers tip well for good service and less for poor service. If servers have no incentive to be quick and turn around tables faster, then customers wait longer, and restaurants make less revenue by serving fewer customers.
||Not only have studies shown that tipping is not an effective incentive for performance in servers,the tip structure also puts servers in the position of working for the customer rather than the restaurant. In fact, some customers secretly resent the expectation to tip, feeling pressure knowing that they are almost entirely responsible for the server’s livelihood.
|While entry level server positions are subject to a very low minimum wage (with tips), it's important to note that these positions are still jobs – jobs that will be predominately filled by low skilled, racially-diverse, and/or first-time workers. A higher dollar per hour rate may affect the restaurant’s employment capacity, forcing some places to terminate workers and/or cut down on the number of jobs and staff.
||In general, raising the minimum wage doesn’t price people out of entry level positions, it just shifts the compensation scale for all jobs. And, it has been proven that tipping creates an environment where people of color, the young and old, women, and immigrants receive subpar service. Not to mention, nonwhite servers make less than their white peers for equal work.
|Companies typically deal with minimum-wage increases by cutting back on labor, boosting prices, and trying to automate services. For instance, chain restaurants like Panera and Olive Garden have begun instituting a server-free dining experience where customers can select and pay for their meals on a small tablet computer.
||Tips are recognized by the I.R.S. as supplemental pay, subject to full taxation like any other wage. Legal or not, many cash-tipped servers do not declare their full, cash tip income in their 1040 form when paying taxes – unfair for those non-server workers that are taxed on their entire income.
Here’s a tip:
Are you a tipped employee seeking more information about your profession’s average annual salary? Check out our salary calculator to learn more about the worth of your chosen profession.