Workplace Trends
January 12, 2023

Inflation is Killing the 20% Tip—Here’s How It’s Impacting Your Employees

During the height of the pandemic, many restaurants experienced a tipping boom, seeing an increase of more than 25% in their customers’ generosity. It made sense. After all, people were encouraged to tip generously to help restaurants and other businesses get back on their feet or even stay afloat. However, we’ve now entered a tipping recession due to global inflation, new trends in automation thanks to the pandemic, and shifting attitudes towards tipping in general. The result? Americans' tipping habits have fallen below pre-pandemic levels.

With more than 5.5 million tipped workers across the country—whose earnings are 50-60% reliant on tips—this changing attitude towards tipping has added more pressure to service workers' financial stability and the businesses that employ them. Let’s examine how tipping has changed in the past few years, why you should care, and, more importantly, what your business can do about it. 

Shifting Attitudes Towards Tipping

In many countries, tipping is seen as a way to give a little extra bonus to high-performing workers on top of their cost-of-living wage. However, in America, tipping has become less of a bonus and more of a necessary part of service workers' earnings. A quick history lesson: in 1938, the Fair Labor Standards Act created the federal minimum wage, but it excluded those in the restaurant and hospitality industries, incentivising the tipping system. Currently, the U.S. The Department of Labour says that tipped workers only need to legally make $2.13 per hour—a number that’s been the same since 1991—and additional wages are completed with what they should receive in tips.

Now more than ever, tipping is truly essential for waiters and other service professionals to be able to afford a livable wage—but customer tips aren't keeping up. There are several causes for this. The largest reason is, of course, inflation. Inflation is the highest it’s been since 1982, and people of all economic groups are cutting back on spending.

Another reason for a shift in tipping is due to the pandemic. The pandemic saw the rise of mobile ordering, home deliveries, and automation that has shaped the future of the restaurant industry. But removing the human element from different steps in the ordering and delivery process means that customers are less inclined to tip as they would if they see who's preparing or delivering their meal face to face.

Some customers also resent or are confused by tipping expectations these days thanks to changes in how business is conducted. For example, think of someone going to pick up a to-go order at a new restaurant. They might not be aware of where their tip will go. Does it go to the person ringing them up? The cooks who prepared the food? Are the tips split evenly? This confusion around how tips are used has contributed to a decline in tipping overall.

Why You Should Care

The decrease in tips is impacting the food and hospitality industry's severe labor shortage—one that already has a high quit rate of over 5%. Low wages are consistently the number one reason why employees want to change jobs. If employees don’t see customers tipping, and they don’t see a counter play to this trend on their paychecks, they won't stick around for long.

After all, their wages depend on tips, and the high inflation affecting them will also make them look elsewhere. Especially since stimulus checks and extra-generous delivery tipping are off the table now that people have by and large moved past the pandemic.

Additionally, reduced tipping can have a detrimental effect on employee morale, leading to low productivity and increased turnover. With an already pronounced shortage in the restaurant and hospitality industry, businesses need to do everything they can to attract and retain tipped workers. Let’s look at some ways you can support your tipped workers through this time.

Strategies to Support Tipped Workers Through Inflation

Supporting tipped employees goes beyond increasing the amount of tips they have access to—and even their base wage. It’s also about helping them feel more financially stable and valued. Here are ways to truly support your tip-reliant workforce so they can weather any economic climate.

1. Make Cashless Tipping Straightforward

Cash has been on the decline for several years; people simply don't have it on hand and therefore can't tip easily if that's their only option. Be sure you're making it easy for customers to tip digitally and for your employees to receive those tips digitally, too.

Using a tool like Branch, you can instantly send cashless tips, mileage reimbursements, or other one-off payments to your workers immediately after each shift. This lets employees know they'll see their hard work rewarded immediately—no more waiting until payday to collect their tips—and the improved cash flow has an immediate, positive impact on their financial stability.

2. Encourage Tipping

A little encouragement goes a long way in reminding customers to tip. Prominently displaying tip jars or signage will remind customers that tips are not only encouraged, but expected. You may also wish to describe your tipping philosophy on a receipt. For example, some businesses include a charge for employees' health and wellness which is built into the total cost. You may include verbiage that describes to customers that these fees or charges do not include gratuity, emphasizing that that is still expected.

Additionally, you can add after-card-payment options to make tipping easier for your customers when they pay digitally. On average, 51% of people have tipped when asked on an iPad or tablet when they otherwise wouldn’t.

3. Offer Earned Wage Access

More and more companies are turning to earned wage access to boost the financial stability of their workforce. It allows employees to receive up to 50% of their upcoming paycheck in advance, which can help them navigate an unexpected expense or simply the current rise in cost-of-living.  Offering a free tool like earned wage access is a great way to improve your employees' cash flow in a responsible way, and one that eliminates the need to issue constant raises or pay increases to employees.

4. Provide Online Banking

Shockingly, many workers remain unbanked or underbanked, meaning it's harder for them to access financial services and get their pay in a convenient way. With Branch, your employees have free access to online banking as soon as they start working for you. Branch comes with zero overdraft fees or minimum balance requirements, helping more people gain steady financial footing and improve their cash flow.

By following these tips you’ll be able to show your employees that you care for their wellbeing and their financial stability—two things that will keep them satisfied, and keep them at your company, for longer.

See How Branch Can Support Your Tipped Workers Through Inflation

Inflation has contributed to an overall shift in tipping habits—and the service industry is suffering because of it. However, there are ways to both encourage tipping among your customers and support your employees throughout tough economic times. Ensure you’re ahead of the game by providing real financial stability to your tipped workers—with free solutions for everyone involved. Learn how Branch can help you do exactly that. 

Support your tipped workforce with instant access to their earnings.

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