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Is tip-flation leading Canadians to their tipping point?

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Are we on the verge of a tipping reform? Okay, the word reform when talking about tips is extreme. That doesn’t alter the fact that a recent study by Angus Reid Institute leaves no room to question that tipping has changed. Changed quickly.

Here’s what Canadians had to say:

  • 62% say they’re being asked to tip more now than in recent years
  • 64% say they’re being asked to tip more often than in recent years

We also said:

  • 71% say service hasn’t improved

Wait. What?

We’re paying more for something and not getting any added value in return, how did that happen? Tipping has always been a bit of a puzzle. How much to tip? Who to tip? When to tip? This new piece of the puzzle just doesn’t seem to fit. 

The turning point

At the risk of repeating, well, everyone, the tip tipping point was the pandemic. Like the Grinch, our hearts grew three sizes for those manning the trenches of public-facing work. They were putting their health at risk. As a token of thanks, we banged our pots with spoons and opened our government-filled wallets.

Our wallets played their role well. Payment services company Square reports that from Jan 1st, 2019 to Jan 1st, 2022, this flood appreciation inspired the average tip to jump from 16% to 20%. The thing is, the pandemic is over, but the increase has lingered as the most recent evolution of this long-held tradition.

Tipping through time

Past state

With origins based in medieval times, the practice of tipping has stood the test of time. Servants, back then, would get extra compensation for a job well done.

In an interview with Yahoo! News, Wayne Smith, a professor of hospitality and tourism management at the Ted Rogers School of Management put this eloquently in a modern-day context. Smith said, “Anyone can bring bread to a table. What a lot of people can’t do is deliver hospitality.”

A new evolution of the practice really took hold, particularly in the restaurant industry, during Prohibition. Unable to sell alcohol, restaurants struggled. Restauranters appreciated the gesture as it eased financial pressures. This is when tipping turned into a custom. Instead of it being a bonus for good service, it became more customary, or “obligatory”. to leave a tip. Some areas even passed laws allowing employers, in industries where tipping is standard practice, to pay below minimum wage. Siting that tips make up the difference.

Current state

It’s not hard to decipher why this pay bump has stuck around. How easily would you give up a raise? A couple of other factors enhanced the increase’s staying power.

Inflation

Inflation took a steep rise. Between January 2020 and January 2023, the Consumer Price Index rose 12.5%. During the same time period, inflation in the food industry climbed 17.9%. With less money to spend, fewer people were eating out. Those that did, faced a larger bill which inevitably meant a larger tip. Inflation has since levelled out, but prices are still hovering high.

Tech

Tech has enhanced our lives in many ways. Payment systems are a prime example. Can’t beat the convenience! No need to carry a lot or even any cash. A swipe of your debit or credit card does the trick. This convenience also comes at a cost. 

Payment systems are the norm. So much so that some places don’t even accept cash anymore. They’ve become the norm, partly, because they encourage us to spend more. In more ways than you might think. Yes, convenience has a lot to do with our newfound spending habits, but other factors are at play here. Namely, tip prompts.

In an interview with Global News, Barry Choi, a personal finance expert, explained, “Prompts are often on the total amount of the bill, rather than the pre-tax amount, which boosts the gratuity even more.”

Choi also addressed the other underlying issue with tech and tip-flation. “You get passed that terminal and what used to be 10 percent, 15 percent now starts at 20. I even recently saw a 30-percent tip suggestion, which is a bit ridiculous.”

Yes, most terminals give you the option to customize the amount you want to give. Great! Many of us pay more though because we’re frazzled by others in the lineup behind us or by the tech itself. Not to mention the server standing there watching what we’re doing. Even in the most straightforward situations, it’s a breeding ground for anxiety and shame. In the end, we just go along with what’s easy instead of increasing the anxiety by changing the tip setting.


Tipping tip: Frazzled by tech and want to have more say in how much you tip? Use cash.


Were you counting?

If you weren’t, here’s the breakdown. Tipping costs have gone up in three ways:

  1. Economic inflation
  2. Payment prompts are based on after-tax amounts, instead of the usual pre-tax
  3. Higher payment prompt suggestions as a standard practice

No wonder we’ve reached our limit when it comes to tipping!

Future state

The world of tipping has gotten out of control. Got it. What do we do? Where are things going from here?

The idea of restaurants having separate sections, a service and no-service, is floating around. Interesting idea, but would we be walking into a shame and cultural landmine?

Some restaurants, like Folke restaurant in Vancouver, have moved to a no-tipping model. Servers are paid a good wage, including benefits, so customers are told not to worry about tipping. 

Atlantic vice-president of industry group Restaurants Canada, Richard Alexander, told CBC that he, “estimates no more than two percent of restaurants in the country have adopted the no-tipping model.”

It seems there’s good reason for so few restaurants making the switch. It’s hard! Both customers and servers have been resistant to the idea of not having control over tips. Until now.

The Angus Reid Institute survey indicated that things are starting to change. Results revealed that 59% of respondents said they would be open to the idea of a no-tip model.

Yet, experts such, Marc S. Mentzer, a Professor of Human Resources and Organizational Behaviour, at the University of Saskatchewan said, “Abolishing tipping is hopelessly idealistic. A more modest and realistic tack is to revisit provincial laws on what actually happens to the tip money after the customer leaves.”

Considerations

Mentzer is touching on a part of this conversation that easily slips a lot of people’s minds. Depending on where you live the rules around what happens to tips change. In some areas, like Newfoundland and Labrador, the practice of tipping out, meaning sharing tips with the rest of the staff, is against the law. In other areas, it’s the norm.

This loops into a couple of big areas of controversy. Servers in these areas have been noted saying that, over the last few years, they are required to share an increasing portion of tips. Even more questionable, some managers and owners say that it’s a team effort and include themselves in the tip-out.

All these topics fold up into one overarching question. 

Who is responsible for paying people working in industries where tipping is the norm?

Is it the server’s responsibility to ensure the cooks are paid a decent wage?

Is it the customer’s responsibility to ensure servers get paid a decent wage?

In Mentzer’s words, “There are some serious issues of human rights.”

It’s important to note that he’s referring to a larger picture than tipping out. Demographics, such as age, gender, and race all roll into this part of the discussion. A restauranteur has no control over how customers behave. That includes whether they’re inclined to give bigger tips to those who fit into certain demographics.

Final thoughts

So many things are unclear. Will we move away from tipping? Is there any chance tip amounts will go down? Will we change back to rewarding a job well done instead of an “obligation”?

No one has a crystal ball to predict how, or if, tipping will change. Leaning on his expertise, Smith says it’ll depend on the marketplace. So far, according to the Angus Reid survey, it seems we’re split down the middle. When asked to agree or disagree with the statement, “I go out less now because of the extra cost of tipping”, answers were roughly equal.

All this to say that, in the end, our wallets will do the talking. A bit of a refreshing thought when you think about it. Like voting, we all get a say in what happens. Now it’s just a matter of deciding which way you want to vote.

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