Why Businesses Can’t Stop Asking for Tips

American businesses have gotten hooked on tipping.

Tip requests have spread far beyond the restaurants and bars that have long relied on them to supplement employee wages. Juice shops, appliance-repair firms and even plant stores are among the service businesses now asking customers to hand over some extra money to their workers.

“The U.S. economy is more tip-reliant than it’s ever been,” said Scheherezade Rehman, an economist and professor of international finance at George Washington University. “But there’s a growing sense that these requests are getting out of control and that corporate America is dumping the responsibility for employee pay onto the customer.”

Some businesses that are new to tipping said they have turned to the practice to try to retain workers in a competitive job market while also keeping their prices low. Asking for tips allows them to increase worker pay without raising their wages.

Consumers seeing tip prompts at every turn say they are overwhelmed—and that worker wages should be business owners’ responsibility, not theirs.

Sixteen percent of the 517 small businesses surveyed by employee-management software company Homebase for The Wall Street Journal ask customers to leave a tip at checkout, up from 6.2% in 2019.

Payroll company Paychex, which provides software for thousands of businesses in leisure, hospitality, retail and other service industries, said more employees are receiving tips as a portion of their pay than at any time since the company started tracking tipping in 2010. As of May, 6.3% of workers whose employers used the software earned tips, compared with 5.6% in 2020. The number remained relatively flat between 2016 and 2020.

As of June, service-sector workers in non-restaurant leisure and hospitality jobs made $1.35 an hour in tips, on average, up 30% from the $1.04 an hour they made in 2019, according to an analysis of 300,000 small and midsize businesses by payroll provider Gusto.

Tips now increase wages for service workers by an average of 25%, compared with 20% between 2019 and 2020, according to Gusto. In May, the average hourly service-industry worker earned $16.64 an hour in base wages and $4.23 an hour in tips.

During pandemic lockdowns, customers of many service businesses began tipping to acknowledge workers who put themselves at risk. Rehman said that made businesses reliant on the practice. Employers with already tight margins say there’s no going back.

“With businesses still preparing for the possibility of a recession, they don’t want to lock into higher wages,” said Jonathan Morduch, a professor of public policy and economics at New York University. “Tipping gives them more flexibility.” He said the practice pushes the financial risk that employers would ordinarily shoulder onto workers.

“Businesses are happy to let workers earn more from tips, especially when there’s no pressure to raise the tipped minimum,” he said, referring to the $2.13 an hour plus tips many bar and restaurant workers across the country earn.

Holding on to workers has been especially difficult in the services sector, particularly since the pandemic. Lodging and food service have had the highest quit rate for workers since July 2021, consistently above 4.9% per three months, the U.S. Chamber of Commerce said in a May 2023 report. The quit rate for the retail trade industry isn’t far behind, around 3.3% so far in 2023. In May 2023, the overall quit rate for workers was 2.6%, according to the Bureau of Labor Statistics.

Dan Moreno, founder of Miami-based Flamingo Appliance Service, decided in 2020 to add an option for customers to tip his employees, reasoning that his home-repair technicians were taking health risks by entering customers’ homes during the pandemic.

About one-third of customers now leave a tip of between 10% and 20%, Moreno said. The requests add an average of $650 a year to his 182 technicians’ salaries, about 1% of their total yearly income.

Rising costs, he said, persuaded him to retain the option after the pandemic abated.

“You wouldn’t believe the margins we operate with,” he said. Competition for workers is fierce. Were he to eliminate the gratuity prompt, he said, he would have to raise prices beyond the 18% he already has, on average, since 2019—likely costing him clients.

He knows the requests might turn off some customers, but as the son of a repair technician and a former technician himself, he said, he tries to do as much as he can for his workers.

Within the food-service industry, tips as a share of compensation are rising faster at limited-service establishments such as bakeries and coffee shops than at full-service ones, according to Gusto.

At the Main Squeeze Juice Co. in Mandeville, La., tips add $3 to $5 to workers’ hourly pay, which starts at $10. Owner Zachary Cheaney said he added the option when he opened the location in 2020.

“We can’t just say, ‘Oh, we’re going to charge $2 extra’ instead of having tips, because we have a duty to our customers to have a very fair price point,” said Cheaney, who also consults for Main Squeeze’s corporate office. If customers think the price is too high, he said, they won’t return. Asking them to tip, he said, is different because it’s optional.

“If customers completely stopped tipping, we would be forced to pay employees more, and it would be hard on us as business operators in this crazy environment of rising costs,” he said.

The juice bar’s general manager, Tiffany Naquin, said tips make up about one-tenth of her $46,000 annual pay. Workers like tips, she said, “in all industries. It’s that little extra.” Knowing a customer will see a gratuity screen at the end motivates employees, she said. “If you give employees incentives, they are going to give you better work,” she said.

Checkouts that include a tip screen are more awkward for customers than for workers, she said. She understands if someone declines to tip, she said, and she wouldn’t let that affect the quality of service.

Morduch, the New York University economics professor, said that while most people tend to think of tips as steady income, many businesses fluctuate seasonally—which means employee pay goes up and down. Service workers who receive tips, he added, are often lower income and struggle to deal with such volatility.

Saru Jayaraman, a labor advocate and director of the Food Labor Research Center at the University of California, Berkeley, said that boosting tips without increasing base pay is bad for workers. If customers stop tipping, she said, worker pay effectively declines, which it wouldn’t if employees got a raise.

“Employers think they’re being smart by using tipping instead of raising wages,” she said. “But really they’re risking losing staff, because it’s pissing consumers off and the employees are the ones who have to deal with it.”

A May survey of about 2,400 Americans by financial services company Bankrate found that consumers are tipping less often than they did at the height of the pandemic. Forty-one percent of respondents said businesses should pay their employees better rather than rely so much on tips. Roughly a third said tipping culture is out of hand.

Denver retiree Mary Medley, though, said she sees being a generous tipper as part of her economic responsibility. For her, it isn’t about how difficult a task was, but whether she can lighten someone else’s financial burden, even a little.

“It’s not my job to figure out where it goes or how it gets distributed,” she said. “But if they’re giving me the opportunity to participate in supporting a business in a tangible way, I’ll do so.”

Former New Hampshire Gov. Chris Sununu delivered a warning to Treasury Secretary Scott Bessent during a recent visit to Washington: Already-high airfares will surge if the war in Iran doesn’t end soon.

Sununu, a Republican who represents some of the biggest airlines as president of the industry group Airlines for America, has for weeks sounded the alarm to Trump administration officials about the economic fallout from high jet fuel prices. The war, Sununu has argued, must come to a close soon, or things will get worse.

Administration officials have gotten the message.

Privately, President Trump’s advisers are increasingly worried that Republicans will pay a political price for the rising fuel costs, according to people familiar with the matter. Many of those advisers are eager to end the war, hoping prices will begin to moderate before November’s midterm elections.

The fallout from the U.S.-Israeli attack in late February has slowed traffic through the Strait of Hormuz, a vital shipping lane, triggering a sharp increase in oil, gasoline and jet-fuel prices.

That means consumers are grappling with high costs ahead of the summer travel season, as they consider vacation plans.

Sixty-three per cent of Americans said they put a great deal or a good amount of blame on Trump for the increase in gas prices, according to a new poll conducted by NPR, PBS and Marist.

More than 8 in 10 Americans said struggles at the gas pump are putting strain on their finances.

Jet-fuel prices roughly doubled in a matter of weeks after the war began, and they have remained high. Airlines have said that will add billions of dollars of additional expenses this year, squeezing profit margins.

U.S. airlines spent more than $5 billion on fuel in March—up 30% from a year earlier, according to government data.

Carriers have been raising ticket prices, hoping to pass the cost along to consumers, and they are culling flights that will no longer make money at higher price levels.

In March, the price of a U.S. domestic round-trip economy ticket rose 21% from a year earlier to $570, according to Airlines Reporting Corp., which tracks travel-agency sales.

So far, airlines have said the higher fares haven’t deterred bookings and they are hoping to recoup more of the fuel-cost increases as the year goes on.

Earlier this week, Trump said the current price of oil is “a very small price to pay for getting rid of a nuclear weapon from people that are really mentally deranged.”

Secretary of State Marco Rubio told reporters that if Iran got a nuclear weapon, the country would have more leverage to keep the strait closed and “make our gas prices like $9 a gallon or $8 a gallon.”

Trump has taken steps in recent days to bring the war to an end. Late Tuesday, the president paused a plan to help guide trapped commercial ships out of the Strait of Hormuz, expressing optimism that a deal could be reached with Iran to end the conflict.

Crude oil prices fell below $100 a barrel on Wednesday, after reports that Iran and the U.S. are working with mediators on a one-page framework to restart negotiations aimed at ending the conflict and opening the strait.

Sununu said Trump administration officials are conscious of the economic fallout from the war: “They get it…and I think that’s why they’re trying to get through the war as fast as they can.”

But he cautioned that it could take months for prices to return to prewar levels.

“Ticket prices won’t go down immediately” after the strait is fully reopened, Sununu said. “You’re looking at elevated ticket prices through the summer and fall because it takes a while for the prices to go down.”

Since the initial U.S.-Israeli attack in late February, Sununu has met in Washington with National Economic Council Director Kevin Hassett, representatives from the Transportation Department and senior White House officials.

A White House official confirmed that Hassett and Sununu have discussed the effect of increased fuel prices on the airline industry. The official said the conversation touched on how the industry can mitigate the impact of high jet fuel prices on consumers.

“The president and his entire energy team anticipated these short-term disruptions to the global energy markets from Operation Epic Fury and had a plan prepared to mitigate these disruptions,” White House spokeswoman Taylor Rogers said, pointing to the administration’s decision to waive a century-old shipping law in a bid to lower the cost of moving oil.

Rogers said the administration is working with industry representatives to “address their concerns, explore potential actions, and inform the president’s policy decisions.”

A Treasury Department spokesman pointed to Bessent’s recent comments on Fox News that the U.S. economy remains strong despite price increases. The spokesman said Treasury officials have met with airline executives, who have reaffirmed strong ticket bookings.

“We’re cognizant that this short-term move up in prices is affecting the American people, but I am also confident, on the other side of this, prices will come down very quickly,” Bessent told Fox News on Monday.

The war has already contributed to one casualty in the industry: Spirit Airlines. Company representatives have said they were forced to close the airline because the sustained surge in jet-fuel prices derailed the company’s plan to emerge from chapter 11 bankruptcy.

The Trump administration and Spirit failed to come to an agreement for the company to receive a financial lifeline of as much as $500 million from the federal government.

Transportation Secretary Sean Duffy has argued that the Iran war wasn’t the cause of Spirit’s demise, pointing to the company’s past financial struggles, as well as the Biden administration’s decision to challenge a merger with JetBlue.

Other budget airlines have also turned to the federal government for help since the U.S.-Israeli attack. A group of budget airlines last month sought $2.5 billion in financial assistance to offset higher fuel costs, and they separately wrote to lawmakers asking for relief from certain ticket taxes.

Why Businesses Can’t Stop Asking for Tips

Employers far beyond restaurants rely on the practice to avoid paying higher wages; testing customer limits

Administration officials have spoken to the airline industry, which has voiced concerns about the rising costs.