Tipping Point

If you really want to stir a pot, forget politics. Bring up tipping. While Americans have been tipping since the mid-1800s, many are annoyed by how ubiquitous it has become, spreading beyond restaurants into almost every facet of our daily lives.

Tipping is another area that has been reshaped since the pandemic. When food service workers put their own health and lives on the line, people gladly started tipping for pick-up service. But as the pandemic subsided and people settled into a new normal, many people felt tipping became anything but normal. Now it seems any place with a service counter and swivel screen is also asking customers to tip for services and in places they have never tipped before.

There are plenty of discussions on Reddit and other social media where people are indignant about picking up their order and being asked to choose between a 10%, 15% or even a 20% tip on a $2 cup of coffee. People are even being asked to tip at self-service stations in the grocery store.

A Pew Research Center survey from late 2023 found that only about a third of Americans say they feel confident about when to tip and 72% say tipping is expected in more places than five years ago. This rise in tipping has even been given a name: “tipflation.”

According to the Emily Post Institute, an authority on etiquette and social graces that was founded by etiquette expert Emily Post, tips for wait service range from 15% to 20% of the pre-tax cost of the meal. And while conventional etiquette doesn’t require tipping for takeout, for extra service such as curb delivery or a large order, 10% is expected, according to the Institute. However, in this new world of tipping, the old rulebook seems to have been tossed out.

Tipping the Presidential Election
The tipping debate has even made its way into the presidential race. Presidential candidates Donald Trump and Kamala Harris have suggested eliminating taxes on tips, an idea that would be a mistake according to most economists and tax experts. Sylvia Allegretto, a senior economist at the Center for Economic and Policy Research in Washington, D.C., says exempting tips from being taxed wouldn’t translate into real benefits for workers struggling to make ends meet. While tipped workers, she says, make up a small fraction of the U.S. workforce—about 2.5%—and more than one-third don’t earn enough to pay income taxes in the first place, they deserve to make a living wage.

“Cutting the federal tax does nothing except reduce the amount that they contribute to Social Security,” says Allegretto, who was a low-wage worker for eight years in bars and restaurants before becoming an economist. “And there’s also the possibility wealthy earners would take advantage of any new system to shield their earnings from federal income taxes. We need to raise the minimum wage and change the pay structure.”

New Hampshire’s minimum wage is $7.25 per hour, the same as the federal minimum wage but, according to Zip Recruiter, as of Aug. 28, the average hourly pay for a food server in NH was $14.46. In the Granite State, there are 3,620 bartenders with an average wage of $17.86 and 10,040 waiters and waitresses with an average wage of $19.59, according to a 2024 report issued by NH Employment Security’s Economic and Labor Market Information Bureau.

However, about one in eight food service workers earn less than $15 per hour, and most are in the states that have a $7.25 minimum wage, Allegretto says. She adds that while a lot of progress has been made when it comes to state minimum wage laws for service workers, “no tax” policies on tips are a gimmick that could do more harm than good.

Understanding the Tipping System
Ahmet Yazgan, whose family has owned Caffe Kilim in Portsmouth for more than 30 years, worked as a bartender in a popular Portsmouth restaurant for a decade before becoming a manager at Kilim. Having come of age in the industry, he says most bartenders in Portsmouth depend on tips to make a living wage. In 2023, according to the Bureau of Labor Statistics, the median pay for a bartender in NH, including tips, was $35,610 per year. “For people with families who depend on them, tips can be especially important,” he says.

Service workers like Yazgan and others at countless breweries, restaurants, bars and cafes across the Granite State have been covered under the Fair Labor Standards Act (FLSA) since 1966. The law requires that all service workers make at least the federal minimum wage. But it also includes an amendment called the “tip credit.” Employers must pay tipped employees a subminimum wage, which in NH is $3.26. They can then credit a portion of tips from customers, called the tip credit, to bring employees up to the minimum wage of $7.25. Employers must notify employees that their tips are being credited toward the minimum wage. Customers, meanwhile, may not realize employers are depending on their tips to help pay the minimum wage.

The subminimum wage is designed to benefit employers, not workers, says Allegretto. “Customers are subsidizing the wage bill, and the fact people don’t know about this two-tier system can be dumbfounding,” she says. “I’ve spent a lot of my career trying to bring it out into the open.”

The original FLSA amendment stipulated that half of the minimum wage for tipped workers would be paid by employers and tips would be credited toward the other half of the minimum wage obligation—a 50-50 split. 

But the gap between the subminimum wage and the minimum wage has grown over the years. Tip credits—which cover the minimum wage gap—are at least $9 an hour in nine states and more than $11 an hour in Maryland and Delaware where the subminimum wage is $2.23 an hour. “It’s no wonder people are ‘tip tired,’” Allegretto says. “This is not how American capitalism should be working.”

Not all states have a subminimum wage and based on the successful experiences of various restaurant chains in states without one, Allegretto believes putting an end to subminimum wages and paying higher minimum wages in the service industry is possible without losing business. “Many chain restaurants exist across all of the policy scenarios, an indication they have adopted profitable business strategies that are successful,” she says. “Everyone working at poverty level wages doesn’t make sense.”

Tip Weariness
As a bartender, Yazgan says tips were pooled with other bartenders and staff who received a percentage at the end of the night. He says the importance of tips can’t be underestimated and he wishes those who complain about tipping understood the important services provided by bartenders, waiters and baristas.

“I will forever be pro tipping,” Yazgan says, adding he believes there is a social contract between guests visiting an establishment and their servers.

“That idea speaks to me deeply. Ninety percent of the things you get when you’re out, you could do at home. But you go out for the experience and the quality of food or drink. You go out for the person who’s there to guide you. You go out for that particular person who’s serving you at times. Some say a bartender is a therapist and that might be a cliché, but it’s true at times,” he says.

Yazgan says people who may complain about excessive requests for tips need to remember the personalized experience service workers help create. “For many people their barista is the first human interaction of the day,” he says. “Our staff has good people skills and as soon as people walk through the door, they’re greeted with a comfortable and welcoming tone. It lets people know this can be their sanctuary. And as much as employees rely on tips, that’s not their focus.”

Yazgan says the importance of tips for employees is dependent on their base wages. He says wages are more competitive in cafes and typically higher than servers at restaurants, but admits this varies by establishment. “Call 10 coffee shops and you’ll see differences in wages,” he says, explaining that different establishments have different expectations of their employees.

Tipping Troubles
Tipping is landing some employers in legal troubles. In July, a NH brewery in Londonderry was fined for taking tips left on credit cards and sharing them among the staff and managers instead of giving  them to specific employees.

According to NH law, tips are considered wages unless the employee “voluntarily and without coercion from his or her employer” agrees to participate in a tip pooling or tip sharing arrangement. New Hampshire law differs from Massachusetts, which allows employers to require tip pooling or “tipping out” to other restaurant or bar staff.

“We hear stories at times that a new manager who has come from another state is applying the rules of that state,” says Mike Somers, president of the NH Lodging and Restaurant Association, which provides advisories several times a year on the legal difference between tips, tip pools, and service charges. “New Hampshire is unique in the way they handle tips and tip pools. In New Hampshire, tipping out is considered voluntary and must be without coercion.”

Somers says tipping pools can foster more teamwork at a restaurant or bar, but only when everyone agrees to participate. “The minute one or two people bow out there can be situations where things break down,” he says. “Maybe the busser in that situation isn’t going to get to tables as quickly.”

Meredith Lasna, an employment law attorney at Pastori|Krans in Concord, says her firm has noticed some employers not properly paying out employee tips. “They’re collecting them, often through credit card charges or at the point of sale, and then not paying them to their employees,” she says. Another issue is salaried employees who should not be tipped are sometimes included in tip pools. “Employers, managers and supervisors should not be taking part in a tip pool,” she says.

While tips must go to a specific person unless there is an agreed upon tipping pool, service charges can be used more broadly by employers to pay employees or to cover bills, Lasna says. “But how this money is being distributed needs to be clear,” she says. “A business needs to clearly state to employees and consumers that it’s a service charge and not a tip. An employer can’t use a point-of-sale system that says it’s a tip and then internally call it a service charge.”

Tipping in an Age of High Costs   
Yazgan’s mother Janice Schenker, who owns Caffe Kilim with her husband Yalcin, says the café pays a competitive wage to its employees but the cost of coffee and other products is now more volatile. And on top of this, she says, there’s an employee shortage in places like Portsmouth where the median cost for rent is $2,950, according
to Zillow.com.

“We have seen significant price increases with many products we sell including our coffee,” Schenker says, “And shipping costs, combined with fuel surcharges, have increased substantially in the last two years.”

It all adds up, Schenker says, explaining the cost of “paper goods are out of control.”

“People ask for a cup of water, and we’ve bought less expensive cups at BJ’s but they point to the cups we use for ice coffee. ‘We have to charge you, we don’t get those for free,’ we tell them.” 

And while Schenker says tips may be affected by rising costs for consumers, this hasn’t been the case at Kilim. “I know it’s because most of our customers are regulars. When they see a barista going out of their way to take care of a person they tip.”

The increased cost of living makes tips even more important from an employee and an employer’s perspective. “Who in the heck can afford to live in the Seacoast area on a food service wage?” Schenker says, adding that in the late 1990s most of her employees were able to afford to live within blocks of the cafe. “Today they can’t live in downtown without five roommates, and not only that, parking is also a big issue in Portsmouth.”

Schenker says Kilim, like many smaller cafes, wouldn’t be able to operate without providing tips for employees. “Our overhead is ridiculous.” she says. “And it can be very difficult to pay enough for people to live in Portsmouth”