HomeBusinessWhy are you suddenly being asked to tip more? Employees may...

Why are you suddenly being asked to tip more? Employees may become more expensive.

Chipotle is now offering digital tips in its stores “as part of our ongoing effort to improve benefits for our crew members,” CEO Brian Niccol said in an earnings call in April. Previously, the company relied only on physical tip jars in its stores.Photo by Brandon Bell/Getty Images

  • More and more businesses are asking customers for a tip.

  • It’s driven in part by the proliferation of digital payment technologies, including prompts to tip employees.

  • But some companies may also tip to avoid paying their employees more.

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

In addition to restaurant waitstaff, customers are now being asked to tip for food deliveries, ride-along drivers, fast food workers, mechanics, and even when using self-checkout machines in cafes, sports stadiums, and airports. It’s because many of these companies have increased wages in recent years to fill vacancies.

“It’s definitely the case that many employers prefer tips over paying employees a decent regular wage,” Ben Zipperer, a senior economist at the Economic Policy Institute, told Insider. “The entire cost is paid by the customer when employees have to rely on tips for pay raises.”

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In addition, Mason Jenkins, clinical assistant professor of marketing at the University of North Carolina at Charlotte, pointed to the proliferation of touchscreen digital payment systems as a major driver of the extensive tip requests and said acceptance can be contagious.

“The more managers see other retailers asking for tips, the more likely they are to take it up,” he told Insider. “The phenomenon works for consumers, too. The more consumers see the person in line ahead of them tipping for counter service, the more we think it’s a norm and the harder it is to resist.”

Americans disagree on what to think of the rise of tipping. On the one hand, customers don’t have to tip, and if tipping is a way for employees—many of whom earn low wages—to get some extra money, that could be a good thing. But as leisure and hospitality businesses find themselves caught between inflation and rising employee wages, some believe customers shouldn’t be responsible for helping them pay employees a living wage. Experts told Insider that it seems like a lot of companies are asking for it — and a lot of customers aren’t happy about it.

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Workers become more expensive and tips help cover costs

Companies relying on tips to help pay their employees is far from a new phenomenon, especially in the restaurant industry. But in recent years, tipping has spread further in American culture, according to Michael von Massow, an associate professor of food economics at the University of Guelph in Ontario.

“Historically, tipping has been reserved for restaurant workers, taxi drivers, and hair stylists,” he wrote in a guest post for The Conversation in January about the state of tipping in North America. “Now other industries, such as fast food, retail stores and even mechanics,” he added, “are offering tipping options at point-of-sale terminals to encourage — or pressure — customers to tip.”

One possible reason why service companies are warming to tipping is that they are under pressure to keep labor costs in check.

Many service companies have struggled to attract workers in recent years and have been forced to raise wages significantly as a result. Instead of raising wages even further to fill remaining vacancies and keep existing employees happy, some companies may be tempted to embrace tipping as a free way to give their employees extra pay, says Laurence Kotlikoff, a professor of economics at Boston University, to Insider

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“Companies are being pressured into hoping that their customers will actually be willing to voluntarily pay more,” he said of the increase in tips.

Today in the US it is still legal to pay tips to employees at just $2.13 per hour, well below the federal minimum wage of $7.25 per hour.

While companies rolling out tips may be able to appease their employees for a while, Kotlikoff said he doesn’t think it will last.

“They’re asking their employees to take a guess at earning more on average with greater variability,” he said. “This may work for a while, but when employees get tired of too many bad tip days and customers get tired of too many companies asking them for bailouts, things will turn around.”

And the discontent could deepen if some employees learn they can’t pocket all the new tips they see, said Jenkins of the University of Charlotte.

“Businesses should be more transparent about where customer tips actually go,” he said. “Anecdotally, I’ve heard from consumers who were surprised to hear from the concessionaires at concerts and sporting events that all the tips they get go to management.”

Are you an entrepreneur, service employee or customer with a vision on tipping culture? Please contact 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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