The tipping economy

By Amelia Walker

From neighborhood diners to Michelin Star restaurants, the great American restaurant experience is wholly unique.

At the backbone of this cutthroat industry lies the servers - the ones who polish your wine glasses, recite the daily specials, and run back to the kitchen during rush hour to fetch you extra sauce.

And at the backbone of their livelihood lies the tradition that influences their every maneuver - the presumption of 20% gratuity when the customer hands back the bill.

“I think in American restaurants specifically, the foundation is built off of the tip system with front of house employees,” says Nic Newton, regional manager for two of Charleston’s busiest restaurants - Church and Union, and Tempest.

The United States tipping culture is an omnipresent force that guides the infrastructure of our restaurant industry. It is unique from every other industry, and unique from every other country as well.

And with suggestions from both presidential candidates to eliminate taxes on tips, the debate over this unique culture is back on the table.

No taxes on tips?

Tipped workers make up about 2.5 percent of the workforce, according to the Budget Lab at Yale. Servers, bartenders and other tipped workers can be paid a national subminimum wage of $2.13 per hour, with the expectation that they will make more in tips.

An increasing number of businesses are paying minimum wage and above, many still rely on the tipping model to pay their employees and attract workers.

Eliminating taxes on tips has pros and cons and its overall impact on the economy is also up for debate. The move would allow employees to take home more pay and have more cash in their pockets, which could decrease the need for restaurant and bar owners to raise wages for those employees.

But there is concern by employees that if customers think there is less of a tax burden on servers, they may tip less -- which would certainly decrease take home pay considerably.

The convoluted history of tipping

The history of tipping in the United States is as complicated as its modern implications.

Ironically, tipping began in Europe during the Middle Ages as a master-serf custom. Gratuity would be given to servants in private homes, which soon spread to pubs, coffeehouses, and other commercial areas. American aristocrats traveling to England then brought the custom back to the States in the late 1800s.

For decades, tipping was seen as undemocratic and feudal, playing into a class system in Europe that many people moved to the United States to escape. There were many political movements to eradicate it, with William Taft even making it a point in his campaign for presidency that he didn’t tip.

“The Itching Palm,” written by William R. Scott in 1916 was one of the first documented arguments against tipping, alluding to the hatred that had developed for the custom.

In 1915, six states (Iowa, South Carolina, Tennessee, Washington, Mississippi, and Arkansas) passed anti-tipping laws, making it illegal to tip. All of these bills were repealed by 1926.

During this time, it was common to see restaurants with “No Tipping” signs on the windows. Many of the articles and campaigns against tipping noted that accepting a tip from somebody was admitting inferiority.

What eventually carried the custom into mainstream American culture was systemic racism.

When former slaves began integrating into the workforce in the early-to-mid 1900s, tipping became a way for restaurants to evade paying for employees. It soon became so common that restaurants were legally allowed to not pay wages.

The New Deal passed in 1938, creating the first federal minimum wage. Restaurants were not subjected to this requirement.

The Supreme Court ruled in 1942 that employees could keep their tips and did not have to pay kitchen staff or employers. In 1966, Congress established “tip credit,” which legally allowed restaurants to pay workers sub-minimum wage, with the notion that tips would make up the difference. This tip credit was frozen at $2.13 in 1996, and that number has not changed since.

“There hasn't been an increase in the tip credit, minimum wage for, geez, I don't know, probably 25 years,” says Robert Frash, former restaurateur who owned and operated six restaurants in New York. Both his father and his grandfather were former presidents of the New York State Restaurant Association.

“That's just absurd,” says Frash. “And you know, the way of thinking is you don't need to pay them a wage because they're gonna make the difference in tips. But that sort of ties into this less than positive image about the profession.”

To put it plainly, tipping in the United States originated from discrimination and classism, and today, these issues have evolved and taken on new forms.

While some servers are undoubtedly making great money, the average tipped worker is twice as likely to live in poverty than a non-tipped worker. The median wage for tipped workers is more than $6 less than the average non-tipped worker. Servers are also predominantly women, which account for 60-70% of all tipped-workers.

Servers in the United States commonly deal with long hours, inconsistent pay, lack of employee rights, lack of benefits, harassment from customers, harassment from managers, and do so all while grappling with the negative societal connotation attached to the job.

Along with these implications, servers all across the country are still making $2.13 an hour, and the entire system may be too far gone to change any time soon.

How American restaurants work

Many agree that the industry has to be revised. However, it is not as simple as just eliminating tipping and paying all restaurant workers livable wages - although that would be ideal.

“Even the most successful restaurant in the world is not usually nearly as profitable as one would think,” says Frash. “The average full service restaurant makes 3-5% profit.”

Newton echoes this, discussing how suddenly paying all servers livable wages would cause menu prices to skyrocket in order to keep restaurants afloat.

“Overall, it really kind of changes up your whole financial business model as a restaurant,” says Newton. “It depends on your concept, but you know, for food you're at like 30%, for labor you're at 30%, so that's 60% right there on top of all of your other expenses.”

What Newton and Frash are discussing are prime costs, which cover food and beverage expenses, as well as labor. Add that number to rent costs, and other expenses like marketing and testing, and the problem is clear.

Frash notes that it might not sound like much, but in most restaurants’ circumstances, the costs would add up quickly.

Imagine if a restaurant like Church and Union increased every front of house worker’s pay by just $5. They have an average of 12 servers on each day, and each server works an average shift of eight hours. That would add up to an additional $14,400/month in prime costs for the restaurant.

While anybody would likely agree that all servers should make a livable wage, the issue has various layers.

The National Restaurant Association has long fought against raising minimum wages for restaurants, citing similar issues as Frash and Newton.

Many tipped-employees agree with this sentiment, saying that raising minimum wage and doing away with tipping would risk decreasing their livelihood.

“I don't think that just eliminating tip credit is gonna be the solution, because that doesn't really solve the problem. It has to be something where everybody in the restaurant makes an equitable portion of whatever the labor service is. And right now that's not true,” says Frash.

Many Americans have their own personal qualms with tipping. One notable idea is that certain businesses should not be pushing customers to tip.

“How many times do you go to Starbucks or to an ice cream place? You're not getting any service. You're standing in line, you're waiting in line, they give you a drink. They swipe your credit card and then they spin this iPad around, the first thing says 'you wanna leave a 20% tip? 15%?' And you're sort of guilted into it,” Frash says. “That's not right.”

Service that offers constant attention to the customer is service that deserves a tip.

“Service is where they come to your table and they say, ‘Can I get you something else? Can I recommend something?’ They have vast knowledge of wines and foods and ingredients and they can tailor your experience,” Frash added.

“So you're not just eating, you're getting this dining experience. That's something that I think is worth tipping for,” Frash says. “But the whole thing's upside down now.”

Is serving a well-paying job?

The idea of a dining experience is truly what separates American restaurant culture from different countries around the world. The desire to receive a tip incentivizes servers to create innovative levels of customer service to satisfy guests.

“Someone's gonna go above and beyond when there's the possibility of more money being on the table,” says Asia Boyet, an accomplished server with over a decade of experience in the industry.

“Like in sales, if your commission's gonna be higher- you're gonna add on the flare, you're gonna be nicer, you're gonna care, you're gonna go out of your way to do things,” Boyet says. “That possibility of making so much more money makes it like, all right, let's do it. I'm on stage now.”

Newton sees this day to day, managing the most-booked restaurant on OpenTable in South Carolina.

“The potential for them to make money on any given night is relatively unlimited in a way,” says Newton when discussing the advantages to relying on customer tips. “Obviously within reason, but there's almost no cap.”

Boyet discusses how in Miami, bottle girls have the potential of making $10,000 on a single

table at a club.

“I'm not sure if there would be as many professionals that have been doing it for so long, that are willing to just come out for 20 bucks an hour,” says Boyet. “Versus not knowing if a table is gonna leave me $300, because they're so impressed with how I've made them a whole experience.”

There’s a fear within owners, servers, and foodies, that eliminating tipping would result in restaurants losing the customer service that can make a good meal great.

“It might become more of a retail type of work,” says Boyet. “I think a server would just become like someone who works in a grocery store.”

Halls Chophouse, a Michelin Star restaurant in Charleston, has a reputation for five-star food and service. Frash discusses how servers at Halls are working less than 30 hours a week, and making upwards of $130k a year after tax.

“Now you tell me how many college graduates are walking into a job paying that much,” says Frash.

Francesco Cappelli, owner and manager of a restaurant in Florence, Italy shared some of his own thoughts about how much money American servers have the potential to make.

“My friend used to work as a sommelier in Cape Cod,” says Cappelli. “He was making commission on wine sales, which basically his minimum bottle of wine was $400.”

“He earned enough money to buy a Porsche 9/11 in the first six months, in cash,” Cappelli remarks incredulously.

However, Capelli brings up a key point- that the bus boys cleaning the table up afterwards were making next to nothing.

This brings up the important idea of wage disparity in the restaurant industry. While some bottle girls in Miami might be making thousands per night, this is not even close to the average server.

“You can work in Hampton, South Carolina, and you get 4 bucks on $80,” Boyet says. “So it kind of depends on what market you're in.”

Servers are also the only restaurant workers that make their money through tips. Kitchen staff, dishwashers, and even managers are rarely making the kind of money that servers make.

Also, servers can only make money if there are people coming to the restaurant. During off seasons, the lack of volume can be a source of financial stress.

In Charleston, we only have a few months of colder weather where tourism may be slow.

“But you know, that can have an impact on how you pay your rent, how you pay other bills, stuff like that,” Newton says.

While Cappelli acknowledges that some servers can make thousands, he disagrees with the system overall.

“What if there's an electrical outage for three days and you lose three days of your tips?” Cappelli asks. “Like, oh, I'm sorry, I can't pay the rent. A rat chewed through the electrical wire of the restaurant and the kitchen was closed for two days.”

“It’s a bit risky,” he adds.

Discrimination and stereotyping in the industry

Serving introduces a power structure where you’re working for the customer, not the restaurant, in order to be paid.

This brings up countless implications for today’s workers in the restaurant industry. Data shows that 90% of tipped-workers have experienced unwanted sexual behavior while at work.

On that same note, “people of color, young people, old people, women, and foreigners tend to get worse service than white males”, writes Brian Palmer who based these findings off a Cornell University Study.

So in layman's terms, the tipping economy presents discriminatory implications for the customer, employee, and the restaurant, which is more likely to seek higher paying customers versus customers profiled to pay less.

Boyet had a lot to share about being a Black woman in the service industry.

As she notes, she was the first Black front-of-house server at the Charleston Place, which is arguably the most prominent hotel in Downtown Charleston.

“That was four years ago,” says Boyet. “And that place has been open for 40 years.”

“I'm not a servant, but you know, they wanna treat you as if you might be a servant," says Boyet. “You know, even saying inappropriate things or gestures, touching. Like I don't touch strangers, but some strangers feel like it's OK to touch me.”

She recalled a time when she was working at a different restaurant in Charleston. She walked up to the table and introduced herself by her name, Asia.

“One of the guys in the party was like, ‘well, you look like your name's Africa’,” says Boyet.

His whole table went silent, and Boyet just continued on reciting the daily specials.

Boyet has experienced physical, verbal, and even financial discrimination throughout her tenure in the restaurant industry.

“I've had an owner make sexual advances,” she said. “And when I declined, he lowered my pay. I wouldn't accept it, but I also didn't feel like I had the means to fight him at all.”

To make money as a server, you have to submit to the wills of those around you.

“It's demeaning,” says Frash. “I mean, I think it's demoralizing that you have to go up to a table, and you have to kind of suck up to these people and hope that they leave you a tip. That's not right.”

The lack of respect that comes with the profession is another reason why so many servers share common stories of discrimination or abuse.

“We had our first child, and I think she was in nursery school or kindergarten, and somebody said, 'what does your dad do',” says Frash. “And they said, he is a bartender at TGI Fridays. And everybody sort of ostracized her as a result.”

“So there's sort of been this cultural mindset that working in the restaurant industry is not a career,” Frash adds.

Newton agrees, and emphasizes that the hostile perspectives do nothing toward helping the industry grow to meet modern challenges.

“There's so many negative stereotypes and connotations regarding the industry,” says Newton. “And some of those are well founded, as far as alcoholism, substance abuse, kind of stuff like that. I think that that sometimes overshadows how great of an industry this can actually be to work.”

Despite the drawbacks, millions of people work in restaurants, and are forced everyday to face the repercussions of these stereotypes.

While there are not many current mechanisms in place to fight against discriminatory implications in restaurants, many are looking toward the future in order to change that.

Comparing the current model to others

This brings us to what union groups, politicians, restaurateurs, and everyday citizens are discussing - what now?

“How do you fix it?” Asks Frash. “Boy, people have been working on this for a long time, and so far nobody's come around to it. Because it's just not a simple fix. And if you just eliminate the tip, that might make it worse. I feel like the entire cultural idea of restaurants and service has to change.”

Today, eight states have changed the narrative by paying tipped workers state minimum wage. The vast majority still pays workers $2.13 an hour. Employers do this with the intention that if tips do not cover the additional $5.12 to account for federal minimum wage, the employer will pay the difference. However, The Department of Labor reports an 84 percent violation rate of this measure.

Restaurant Opportunities Center United(ROCU) is among the many interest groups popping up to raise minimum wages for restaurant workers. They have brought many initiatives to light, including a prevalent case in DC (initiatives 77 and 82). After repeals and revotes, DC has decided to slowly phase out the tip credit, and plans for servers to make minimum wage by 2027.

As various states and private owners attempt to fight against the broken system, one place to look for insight is abroad.

Cappelli offers a comparative look into the differences in the industry between the US and Italy, where he owns and operates his business.

“The way I perceive the American food industry is that it's intense,” says Francesco. “Like you walk into the restaurant and bar, they're ready for you.”

“You get a feeling that there's a lot of competition, both between the work staff and the restaurants themselves. Um, after a while I started thinking, wow, this is actually hyper-fake as well,” he says.

Cappelli talks about how tipping works in Italy. Credit card tips are completely illegal, although that might change soon with new bills being passed. Cash tips are generally split between the entire staff at the end of the night.

“What we do is more of a motivation for team bonding,” says Francesco, discussing how his staff views tips.

“I don't know what happened in the 90s or 2000s,” says Francesco. “But somebody like Rick Steves or someone wrote in a book, ‘Hey, when you go to Europe, don't tip,' like, whoever wrote that put us back 15, 20 years.”

Cappelli, seeing how his sommelier friend is living large, hopes that tips will eventually make their way back to Europe.

However, he emphasizes that he would still choose their model over the U.S. model.

“People get work contracts, healthcare, benefits, they can get everything else paid for,” Cappelli says.

“I wouldn't wanna feel vulnerable,” he adds, referring to the lack of structure in the American restaurant industry. “Like there's no real career in the U.S. - here in Italy you actually are seen as a professional worker.”

Frash comments on not only the differences within the restaurant industry in Europe, but also the societal differences that play an important role.

“If you're a server in Europe, and particularly in Northern European countries like in Scandinavia, Germany, France - they make good money. I mean, you know, it's not unusual to make $35 an hour plus benefits or more,” Frash says. “And it's not a transient job. These people are career servers.”

Frash wishes that working in restaurants was more valued, like it is in Europe.

“You know, I mean, these are socialized countries that have free education, free healthcare. They're making a good living wage. It's a respected profession. None of that's true in the United States,” Frash says. “So the whole culture, you know, from top to bottom is just a very different way of thinking.”

As Frash says over and over, eliminating tip credit and switching to a model that more closely mirrors Europe is not the cut-and-dried solution it seems.

There has to be an entire cultural mindset shift. On top of that, restaurants have to find a way to keep themselves afloat if tip credit ever were to be revised.

This means higher menu prices, to start.

However, if higher menu prices can lead to a new industry where servers, busboys, bartenders, managers, and kitchen staff are all making a livable wage, then it would be worth it.

“So the restaurant business, I don't know if it's beyond hope, but it's so much more nuanced than to just say, to eliminate tip credit. That wouldn't even begin to scratch the surface,” says Frash.

Whether it’s slowly phasing out tip credit like in DC, banning tipping for non-service-related products, or simply educating oneself about the consequences of this broken system, the unbeknownst solution to the broken tipping economy may not be found immediately.

Meanwhile, tip your servers - even if they forget to bring you the extra sauce.

Although the situation is complicated, Frash is happy that there is a discourse to begin with.

“Because it needs to be discussed,” he says. “And I don't know what the solution is, you probably don't know, your professors may not know, but if we don't talk about it, we'll never find it.”