From Gratitude to Obligation: Navigating America’s Evolving Tipping Culture

In America today, tipping has evolved from a voluntary gesture of appreciation to an almost obligatory part of every transaction. Recent reports show over a quarter (29%) of adult consumers in the United States today consider tipping more as a requirement than a choice. Moreover, 72% of American adult consumers believe tipping is expected at more businesses today than in the past 5 years. No longer confined to traditional service industries, the expectation of tipping has permeated a wide range of businesses, from coffee shops to movie theaters to airports.

With the surge of ‘tipflation’, many American consumers believe the trend has spiraled out of control. This sentiment is most prevalent among Gen Z consumers, with 66.7% feeling dissatisfied about America’s current tipping culture. Similarly, 52.5% of Boomers, 43.8% of Millennials, and 42.9% of Gen X share this frustration. Consequently, this sentiment has caused a shift in tipping behavior, with consumers tipping less at businesses where they would typically leave gratuities. Four years ago, 77% of diners at sit-down restaurants would leave a tip for their waiter; today, that number has dropped to 65%.

According to Sal Nazir, General Manager of PAR Technology’s PAR Payments division, American consumers are experiencing more tipping prompts than ever before. With almost every transaction prompting for a ‘tip’, most consumers are getting “tip fatigue”. This surge in tipping prompts is largely due to how easily businesses can integrate these prompts directly at the point of purchase. “In addition, rising wage pressures and the need to retain employees are significantly driving the spread of more tipping requests.”

Tipping Programs Foster Employee Satisfaction and Retention

For the restaurant industry specifically, the unavoidable ‘Add a Tip?’ screens are essential to employee retention efforts, especially with current labor challenges. The restaurant industry continues to battle relentless staffing shortages and high turnover rates. Across the country, operators are feeling the strain, with most (62%) reporting that they do not have an adequate number of staff to fully meet customer demand. Moreover, the food service industry suffers an astonishing 5.1% quit rate, higher than any other industry.

Amidst these challenges, restaurant operators are grappling with all-time high labor costs, exemplified by California’s recent increase in minimum wages to $20/hr. Unsurprisingly, a staggering 89% of restaurant operators identify labor costs as a critical industry pain point.

In such a competitive labor environment, implementing tipping programs has proven instrumental in helping restaurant brands combat labor challenges and save costs. These programs provide restaurant operators with a structured way to recognize and reward outstanding service while fostering a supportive work environment.

The impact of tipping programs on employee retention is undeniable. Restaurant brands that have adopted these programs are experiencing remarkable improvements in retention rates:

MAD Greens, a fast-casual restaurant brand with 26 locations, recently implemented PAR Pay’s customizable tipping program to combat similar labor challenges. According to Nick D’Antonio, Vice President of IT at MAD Greens, before implementing the customized program, MAD Greens had the traffic and sales needed to succeed, yet still faced a staff shortage to adequately meet customer demand.

By implementing PAR Pay’s customizable tipping program, MAD Greens has been able to focus on the superstar staff they already employ – rather than hiring new employees due to turnover – and properly compensate them. The addition of the customized program has been immensely successful in the brand’s employee turnover efforts, empowering them to improve retention rates by 34%.

“Late in 2021, we saw employee turnover go from 162% year ending to 133% in 2022,” explained D’Antonio. “Our employee turnover then continued to decrease down to 128% in 2023.” With PAR Pay’s customizable tipping feature, MAD Greens has been enabled to implement a company-wide tipping strategy, which has led to an average $4 per hour increase in hourly wages.

PAR Pay’s Customizable Tipping Program

PAR Pay’s tipping program is fully customizable, enabling restaurants to tailor payments and tipping data to their preferences. The ability to access customized data not only helps operators report to employees on how much they are earning, but also with back-end administrative tasks like calculating tip pools and distributing tips to staff members more efficiently.

As restaurant brands continue to combat labor challenges, tipping programs offer a valuable solution for improving employee retention and saving costs. Although American consumers often resent the current tipping culture, finding the right balance is crucial for businesses, especially in supporting effective labor strategies.

Per Sal Nazir, “Businesses should be transparent in how tips are captured and shared with employees so consumers can feel like they are contributing to a greater cause.” Being upfront about hidden fees, surcharges, and tip distribution brings peace of mind to consumers and encourages them to leave gratuities, knowing their money directly benefits the staff who serve them. For consumers, defining a tipping playbook and understanding when to tip is necessary as leaving gratuity is ultimately a personal choice.

Additionally, businesses could consider eliminating tipping programs entirely by incorporating service costs into menu prices or raising staff wages. This would require clear and effective communication to ensure customers understand that the higher prices reflect fair wages for staff. By doing so, restaurants can create a more straightforward and equitable payment strategy, reducing confusion and promoting a more seamless dining experience.