The Great Tip Debate
Tipflation is getting out of control, what to do about it?
People are getting angry about tipping. From both sides; customers feel stressed about tipping enough, and service workers who are relying on the customers to make the wage livable. Both sides are not wrong. It’s important to look at where this is coming from, and where to more productively direct their anger.
The issue comes down to unfair and unlivable base wages for service workers. Adding onto it is the heap of profits organizations are making, and still passing that labor cost onto the consumer. Essentially the consumer is paying the organization twice, once in the form of profit and then again in wage contribution. Enabling the organization to minimize its financial responsibility to the employees and increase profits for shareholders.
To demonstrate this point, let’s look at how it works from a corporate business perspective of a company in the United States with more than 100 employees.
The employer is required to pay a base wage for their employees. The company would then need to pay a certain percentage of that amount in Federal Income Tax, and unemployment tax for both state and federal. For example: with an annual salary of $35,000 USD, the company’s actual salary costs likely will range from USD $43,750 to $49,000. This doesn’t include other items like healthcare and time off. To the company, higher wage means higher tax and other payroll costs.
When a worker is tipped, they are solely responsible for the taxes on those tips. It’s simple math; the corporation pays less in wages and in taxes, making significant savings for the corporation. Not only passing on the burden of a livable wage to the customer but also to the employee. Therefore increasing their profits and shareholder returns.
Fortunately, there is some progress in workers’ rights. California has formed a new state board discussing fast food operations which is looking to set a minimum wage of $22 an hour. This is getting folks closer to a living wage, which is a good thing for many reasons, one being that fast food workers don’t often receive tips. Of course, fast-food corporations and other organizations are working hard to fight this.
In an effort of whitewashing, Starbucks is raising its statewide minimum wage in 2023 to $15 an hour. This is at best a 10% increase for the average worker. Counting for inflation, year over year, it’s still a declining wage. Just comparing wage increases to rents, aside from inflation, many low-wage workers can’t keep up.
Corporations can absolutely afford to pay their employees more. Starbucks earned US$32.3b in revenue in 2022 (up 11% from FY 2021). The CEO earned approximately 1,049 times that of an average employee. They are feigning generosity by increasing that minimum wage, but employees are still grossly underpaid and that difference is being passed onto the consumer and the employee.
The frustration of tipping from consumers is real. We’re getting squeezed from every side by corporate profit margins. Our pay is not increasing, and our homes and basic needs costs are rising sharply. What once was an easy joy; a muffin, a coffee, a quick take-out burrito, are all escaping the range of our paychecks. Tipping to cover the wage of the service worker is a stretch too far. And we should be angry about it. Organizations like Starbucks know exactly how to get more of our money.
For instance, with new Point of Sale systems (POS), organizations can set the tipping screen to come up for all sales automatically, regardless of what it was or the way they pay their employees. This is a deliberate design in order to increase tips and it is becoming widespread. The other day, at a small grocery store, the POS promoted me to tip the cashier when paying for simple groceries. While this is obviously a stretch too far, in other circumstances, where it’s the norm to tip, like a cup of takeaway coffee, setting the minimum tip amount to 20% is becoming more prevalent. In these circumstances, the consumer has to reconcile their internal guilt when deciding how much to tip. Companies know this, and the design is deliberate.
The misunderstanding is that the debate of how much or even if to tip, is not about the generosity (or lack of it) of the consumer. It’s about the greed of the corporation not paying a living wage and passing both the increase in product and the salary of the workers onto the consumer and the employee.
As always, we have a choice. When we find ourselves frustrated by this tipflaton, we can make decisions about how and where we spend our money. We can:
-Not shop/dine at places that don’t pay a living wage and expect tips to make up the difference
-Make our coffee/snacks etc at home and take it to go in reusable containers
-Skip the big corporate chains and go to your locally-owned places
-Ask the employees how they are treated, check it out on Glassdoor, learn about your community, and take an interest in their well being
-Support union efforts for employees gaining better barging rights