Tipping in the U.S.: Twelve Things You Need to Know About Gratuities

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Tipping is a simple fact of life in the United States. Well, actually, it’s not that simple. There are a lot of rules to tipping. In reality, it can be quite complicated. If you live in America, you are probably already well-accustomed to paying the extra cost that gets tacked onto everything from meals and beverages to rides and haircuts. If you’re new to the U.S., or if you’re just visiting, all of this tipping may be a little hard to navigate. It might also feel a bit like you’re getting ripped off. After all, everything here costs just a little more than the sticker price. 

First, let us assure you that you aren’t getting ripped off. Tipping is simply part of the cost of living in America. Tipping plays a unique role in the American economy. As a consumer, it is your responsibility to understand when you are expected to tip and roughly how much you should tip in a given situation.

If you’ve already lived and shopped in the United States for any extended period of time, you should be pretty familiar with the concept of tipping. From a quick stop for a cup of coffee, to a ride in a city cab; from the turndown service in your hotel room to the bathroom attendant who hands you paper towels in a fancy restaurant, you’re probably constantly dropping a dollar here or a 20% gratuity there. 

But are you following all of the unspoken rules of tipping? Is there anything you might not know? 

Why do we tip so much in the U.S.?

Before we get into the tips, let’s just acknowledge a simple fact about life in the United States. America is expensive. Living here is expensive. Housing, cars, technology, media, gas, food—add it all up, and your life costs a fortune. And yet, countless Americans live on exceedingly modest hourly wages. For those in various service roles, these wages are more modest than perhaps you even realize.

The truth is that certain service jobs exist within an economic loophole that is convenient for employers but not particularly great for hourly workers. Go Banking Rates reports that, “According to the Bureau of Labor Statistics, employers are only required to pay tipped employees a minimum of $2.13 an hour, if the worker’s tips can add up to the federal minimum wage — $7.25 — or more. But this varies state by state. For example, in California, tipped employees are guaranteed the state’s minimum wage on top of their tips.”

Simply stated, hourly wages in most service jobs are not high enough to constitute a livable wage without the supplemental income provided by tipping. In a large way, tipping is our most direct path to helping support hourly wage workers. While it may not always be convenient or preferable to dig into your pocket for a few bills, it is the right thing to do.

So let’s make sure we all do the right thing the right way!

If you’d like to learn more about the service industry, check out our look at what the gig economy is and why it’s growing so fast.

Otherwise, read on and learn Twelve Things You Might Not Know About Tipping …

1. The Minimum Wage for Tip Workers Has Been the Same for 60 Years

Let’s start by reinforcing the point above, because it really is critical to understanding why we tip. In 1966, Congress codified a federal law which said that workers earning more than $30 a week in tips could be paid a lower minimum wage. They established that minimum wage at $2.13 per hour. Can you guess what the federal minimum wage for tip earners is today? If you said $2.13, you would be tragically correct. 

If we use an inflation calculator, we can see that paying somebody $2.13 per hour 2022 is roughly the equivalent of paying somebody $.27 per hour in 1969. Restaurant owners have the legal right to pay their employees 87% less today than they did in 1969. In the simplest possible terms, this means that employers were granted the right to stiff their employees back in the 60s and we’ve been picking up the tab ever since. Given the recent intensification of inflation, restaurant workers are making less per hour than ever before. Our tips aren’t just important. For many service industry workers, these tips are everything.

2. There Was Early Resistance to Tipping

We all know there are bad tippers out there—whether it’s because they don’t know how to tip effectively or because they actually have an ax to grind with the very concept of tipping. We’re hoping this article helps if you’re in the former category. If you’re in the latter category, know that there is a brief and not particularly illustrious history of resistance to the very concept of tipping. 

According to wanderlustingk.com, tipping emerged in the aftermath of the Civil War. It was reportedly introduced to wealthier Americans by their visiting British peers. It turns out that “for the average new America in those days, tipping was a very polarizing concept. So much so that organizations, such as the ‘Anti-Tipping Society of America,’ existed in the south to discourage the practice being spread throughout the newly formed states.” 

An eye-opening article from NPR offers a closer look at the unveiled racial implications of this anti-tipping movement, which seemed particularly prevalent in segregated states. The anti-tipping movement basically peaked in 1915 when Iowa, South Carolina, Tennessee and Georgia joined Washington, Mississippi, and Arkansas by actually passing statewide anti-tipping legislation. These laws were short-lived though, as public practice simply overrode their relevance. Most people were just naturally inclined to tip. By the mid-20s, all anti-tipping legislation had been repealed. By mid-century, the practice had become standard among American consumers everywhere. 

3. Tipping Comes from Abroad But Americans Ran with It

The earliest opponents of tipping went so far as to call the practice “un-American.” Of course, today, few things feel more distinctly American than tipping. But those critics had a point, sort of. According to NPR, Americans learned about tipping from wealthy European immigrants, who carried out the practice in a manner that hearkens back to feudalism. To many American observers, tipping conveyed an aristocratic superiority, one that allowed the giver to graciously dole out small farthings to the serfs. But the practice also picked up steam with Americans inclined toward the high life. Those who observed the custom when traveling abroad returned home more inclined to dole out their own gratuities. 

“The irony,” says NPR, “is that, though Americans imported the tipping custom from Europe, countries such as France have long done away with tipping: A 15 percent service charge is automatically added to the bill, and customers aren’t obliged to tip.” 

4. Tipping Is Different in Every Country

The United States may have learned about tipping from Europe, but tipping practices are pretty different across the pond. In most European countries, restaurant workers earn a standard minimum wage. And in many countries, restaurants will automatically tack on a service fee. In some European nations, there is no need to tip. In other European countries, it may be customary to add on a small additional gratuity of 5 to 10%. 

Matador Network provides a pretty handy country-by-country breakdown of tipping customs for various types of service workers in Europe. But the rules are truly unique to each nation, well beyond Europe. For instance, not only is tipping not customary in Japan, but it may actually be considered rude. Casually handing cash to a service worker is considered uncouth and demeaning. Even in instances where you’ve received special services that may warrant a tip,  Inside Japan Tours advises transmitting your gratuity in an ornately decorated envelope rather than simply thrusting cash into the hand of the recipient. 

As a visitor to any nation, it’s up to you to learn the customs. Tipping is among these customs. And if you are a traveling American, take some comfort in knowing that tipping costs more at home than virtually anywhere else you might be going. 

5. Anything Less Than 20% Is Pretty Uncool

One reason that tipping costs more in the United States is that the basic percentage of the bill that you are expected to tip is simply higher here. Whereas you may pay an automatic 15% service fee in some countries, or even just a 5 to 10% gratuity to your server, 20% is the amount you are expected to tip on top of your total bill. 

Full disclosure: I’m old enough to remember a time when the expected sum for a tip was just 15% of your. But refer back to our discussion on inflation and the stubbornly low minimum wage for restaurant workers. The number has gone up largely out of necessity. So if 20% feels steep to you, consider that this growth in expected gratuity is actually the only raise restaurant workers have had in the last half-century. And if it’s any comfort, the math is a little easier at 20% than 15%. 

6. Beware of Automatic Gratuities

There is at least one thing that restaurants do to protect their servers from getting stiffed on a big bill. Many restaurants will add an automatic gratuity to any bill over a certain threshold. This means that a charge of between 18 and 20% will have already been added to the overall total. 

No matter how good a time you’re having racking up that big bill with your friends, make sure you read the fine details before you slap down your gold card. The automatic gratuity should be readily indicated in your bill…but of course, you have to actually look for it. If you don’t, your generosity may exceed your intent. Giving your server an excessive tip is a wonderful thing to do…as long as it’s on purpose. 

7. Servers and Stylists Do the Best

Much of our focus has been on restaurant workers but the service sector is a wide and varied segment of the labor economy. While restaurant workers may be poorly served by the federal rules surrounding minimum wage labor, they are among the best compensated workers when it comes to tip earnings. So too, by the way, are hairstylists. 

According to Go Banking Rates “A 2017 Discover survey found that servers and hairstylists make the most in tips. Servers earned an average of 16% in tips, followed by hairstylists who earned an average of 13% in tips.” 

There is indeed a pecking order to tip rates. Go Banking Rates notes that, at the lower end of the spectrum, takeout cashiers and casino dealers earned tips in the range of 4 to 6%. 

Falling in between are a huge spectrum of workers earning anywhere from 10 to 15% (manicurists, cab drivers, Ubers, etc.) to just a few dollars ($1 to $5) per transaction (Baristas, bathroom attendants, delivery drivers, valets, etc.) 

When it comes to tipping any number of service workers, think about how much time you spend with this individual. You’ll spend an hour or more with a server, whereas you’ll spend less than a minute with a delivery person. The size of your tip is often proportional to the amount of time you actually spend relying on this individual’s service.

There are also countless other service workers that you might choose to tip with an annual holiday gift—$20 to $150 will do depending on how often you see them and how close of a relationship you have developed. The list of recipients might include your doorman, mail carrier, sanitation workers, landscapers, babysitter, and more. None of these are required tipping situations, but a little generosity could earn you a ton of goodwill, or maybe just a friendly smile, from the people who work in your neighborhood. 

8. You Should Tip the Owner

An old-fashioned custom says you aren’t obligated to tip for services provided directly by the owner. This is a pretty dated concept, actually. If you go to a salon, and the owner cuts your hair, chances are pretty good that the owner is working hard to make ends meet just like the rest of us. Mom and pop stores often operate on small budgets and slim margins. So if an owner cuts your hair, serves your meal, or does your manicure, assume that tips are an important part of their income. 

9. Women Are Better Tippers

As we noted above, the going rate for tipping in a restaurant is 20%. Apparently, men didn’t get the memo. Go Banking Rates reports that “When it comes to tipping, women are more generous than men. Women leave a median tip of 20% compared to men who leave a median tip of 16%, according to a 2018 survey conducted by GfK Custom Research North America for CreditCards.com.” Considering that women make roughly $.81 to every dollar earned by a man in the United States, the gender generosity gap is perhaps even more lopsided than it appears. 

Come on, gentlemen. We can do better.

10. Tipping Is a Little Generational

Gender isn’t the only revealing demographic trend. There’s also evidence that tipping practices are stratified by age group. The term “Baby Boomer” has gotten some bad press of late. If you’re looking to burnish your generation’s reputation, these basic tipping stats might help your case a bit. According to a survey from 2018, 55% of Boomers aged 65 or older said they tipped more than 20%. That compares to only 29% Millennials who tipped this recommended amount. An egregious 59% of millennials said they usually tip 3% or less. For shame, Millennials. 

11. It’s Not About Wealth

You might assume that the less generous Millennial cohort is simply this way because it lacks the funding of its Boomer counterpart. But this explanation clashes with another finding. According to Go Banking Rates, “In the 2018 survey by Civic Science, 60% of people with an annual household income before taxes of $100,000 or more leave a 2% tip. By contrast, 32% of people with an annual income of $50,000 or less leave a 2% tip.”

In other words, those on the higher end of the earning spectrum were more likely to stiff their servers than those who could relate to the experience of scraping by on subsistence wages. Legend has it that both John D. Rockefeller and Andrew Carnegie were outspoken critics of tipping. The former of the two millionaires is even said to have occasionally pranked would-be tip recipients by handing them chestnuts. Is it possible that empathy is a major determinant of which demographics tip, and which do not? 

12. Cash Is Better for Your Tip Recipient

As long as we’re on the subject of generosity, cash is still king. If you’ve got it, dispense it. Naturally, you can write in a tip when you pay your restaurant bill with a credit card. But credit card bills take time to process. In most cases, restaurant workers will receive those credit card tips with their weekly or biweekly paychecks. Every bartender and server in the world would prefer to go home with cash in pocket. 

And of course, just between us, credit card tips will be automatically reported to the IRS as income. Cash tips—well, that’s a gray area. If you’d like to help keep it that way, and lend a helpful hand to the hard working people in the food services industry, cash tipping is always better. 

Then of course there are the countless transactional experiences in your life where card tipping isn’t possible. Not only should you always have a pocket full of cash, but you should always have a few small bills at the ready disposal for tipping valets, coat checks, bellhops, manicurists, and restroom attendants. A stack of one-dollar-bills is a valuable commodity, especially when you’re traveling.

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By the way, it should go without saying that the cultural prevalence of tipping in the U.S. makes it important to always keep a few paper bills in your pocket. But that’s not the only reason to keep your purse or wallet well-stocked. Check out these Ten Reasons You Should Always Keep Cash On Hand.