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.”

LIKE MARVEL VILLAINS, most fashion writers have origin stories. Mine began with a navy nylon Prada purse, salvaged from a Boston thrift store when I was a teen in the 1990s. Scuffed with black streaks and sagging, it was terribly beat-up. But I saw it as a golden ticket to a future, chicer self. No longer a screechy suburban theatre kid, I would revamp myself as sophisticated, arch, even aloof. The bag, I reasoned, would lead the way.

That fall, I slung it against my shoulder like a shotgun and marched into school, where a girl far more interesting than I was called out, “Hey, cool bag.” After feigning apathy —“I don’t know, you could use a Sharpie on a lunch bag and it would look the same”—we became friends. She introduced me to a former classmate who worked at a magazine. That woman helped me get an internship, which led to a job.

Twenty years later, I still wonder how big of a role that Prada purse played in my future—and whether designer bags can function as a silent partner in our success. Branded luxury bags took off in 1957, when Grace Kelly posed with an Hermès bag in Life magazine. (Hermès renamed that bag “the Kelly” in 1973.) The term “status bag” was popularised in 1990 by Gaile Robinson in the Los Angeles Times, describing any purse that projects social or economic power. Not surprisingly, these accessories are costly. Kelly bags cost over $10,000; ditto Chanel’s 11.22 handbag. Some bags by Louis Vuitton and Dior command similar price points. The cost isn’t repelling customers—both brands reported revenue surges in 2023. But isn’t there something dusty about the idea that a branded bag carries meaning along with your phone and wallet? How much status can a status bag deliver in 2024?

Quite a lot, said Daniel Langer, a business professor at Pepperdine University and the CEO of Équité, a Swiss luxury consulting firm. Beginning in 2007, Langer showed a series of photo portraits to hundreds of people across Europe, Asia and the U.S., then asked them 60 questions. Those pictured carrying a luxury handbag were seen as “more attractive, more intelligent, more interesting,” he said. The conclusion was “so ridiculous” to Langer that he repeated the studies several times over the next decade and a half. The results were always the same: “Purchasing a ‘status bag’ will prepare you to be more successful in your social actions. That is the data.”

Intrigued, I gathered various Very Important Purses—I borrowed some from friends, and others from brands—to see if they could elevate my station with the same unspoken oomph as a “Pride and Prejudice” suitor.

First, I took Alaïa’s Le Teckel bag—a narrow purse resembling an elegant flute case and carried by actress Margot Robbie—to New York’s Carlyle Hotel on a Saturday night. The line for the famous Bemelmans Bar stretched to the fire exit. “Can I get a table right away?” I asked the host, holding out my bag like a passport before an international flight. “It’s very busy,” he said in hushed tones. “But come sit. A table should open soon.” I sank into one of the Carlyle’s lush red sofas and sipped a martini while waiting—a much nicer way to kill 30 minutes than slumped against a lobby wall.

Wondering if this was a one-time thing, I called up Desta, the mononymous “culture director” (read: gatekeeper) who has worked for Manhattan celebrity hide-outs like Chapel Bar and Boom, the Standard Hotel bar that hosts the Met Gala’s official after party. “Sure, we pay attention to bags,” he said. “Not too long ago at Veronika,” the Park Avenue restaurant where Desta also steered the social ship, “we had one table left. A woman had a Saint Laurent bag from the Hedi Era,” he said, referencing Hedi Slimane , the brand’s revered designer from 2012 to 2016. “I said, ‘Give her the table. She appreciates style. She’ll appreciate this place.’”

Some say a status bag can open professional doors, too. Cleo Capital founder Sarah Kunst, who lives between San Francisco and London, notes that in private-equity circles, these accessories can act as a quick head-nod in introductory situations. Kunst says that especially as a Black woman, she found a designer bag to be “almost like armour” at the beginning of her career. “You put it on, and if you’re walking into a work event or a happy hour where you need to network, it can help you fit in immediately.” She cites Chanel flap bags made from the brand’s signature quilted leather and stamped with a double-C logo as an industry favourite. “People love to talk about them. They’ll say, ‘Ohhh, I love your bag,’ in a low voice.” They talk to you, said Kunst, “like you’re a tiger.”

For high-stakes jobs that rely on commissions—sports agents or sales reps, for instance—a fancy handbag can help establish credibility. “It says, ‘I’m succeeding at my job,’” said Mary Bonnet, vice president of the Oppenheim Group, the California real-estate firm at the centre of Netflix reality show “Selling Sunset.” As a new real-estate agent in her 20s, Bonnet brought a fake designer bag to a meeting. To her horror, a potential buyer had the real thing. “I work in an industry where trust is important, and there I was being inauthentic. That was a real lesson.” Now Bonnet rotates several (real) Saint Laurent and Chanel bags, but notes that a super-expensive purse could alienate some clients. “I don’t think I’d walk into [some client homes] with a giant Hermès bag.”

Hermès bags are supposedly the apex predator of purses. But I didn’t feel invincible when I strapped a Kelly bag around my chest like a pebbled-leather ammo belt. The dun-brown purse cost $11,800, a sum that prompted my boyfriend to ask if I needed a bodyguard. Shaking with “is this insured?” anxiety, I walked into a showing for an $8.5 million apartment steps from Central Park. I made it through the door but was soon stopped by a gruff real-estate agent asking if I had an appointment. No, but I had an Hermès bag? Alas, it wasn’t enough. The gleaming black door closed in my face.

“What went wrong?” I asked Dafna Goor, a London Business School professor who studies the psychology behind luxury purchases. “You felt nervous,” she replied. “That always makes others uncomfortable, especially in a high stakes situation,” like an open house with jittery agents. Goor said recognisable bags from Louis Vuitton and Christian Dior are also often faked, which can lead to suspicion if not paired with “other signals of wealth.”

“You can’t just treat a bag as a backstage pass,” said Jess Graves, who runs the shopping Substack the Love List. Graves says bags are more of a secret code shared between potential connections. “I’ve been in line for coffee and a woman will see my Margaux [from the Row] and go, ‘Oh, I know that bag.’ Then we’ll chat.” Graves moved from Atlanta to Manhattan in 2023, and says she’s made some new, local friends thanks to these “bag chats.”

I had my own bag chat that night, when I brought Khaite’s Olivia—a slim crescent of shiny maroon leather—to a house party thrown by a rock star I’d never met. In fact I knew hardly any guests, but as I stood in the kitchen, a woman in vintage Chanel pointed to my bag and asked, “How did you get that colour? It’s sold out!” Before I could tell her my name, she told me the make and model of my purse. Then she laughed about her ex-boss, a tech billionaire, and encouraged me to buy some cryptocurrency. The token I picked surged nearly 30% in about a week. Now I was onto something—a status bag that might bring not just status, but an actual market return.

Thanks to their prominence on social media, certain bags have gained favour among Gen Zers. “TikTok and Instagram make some luxury items even more visible and more desirable to young people,” said Goor. I experienced this firsthand on a stormy Saturday morning, when a girl in a college hoodie pointed at my Miu Miu Wander bag as I puddle-hopped through downtown New York. The piglet-pink purse is a TikTok favourite seen on young stars like Sydney Sweeney and Hailey Bieber. “Your bag is everything!” yelled the girl from the crosswalk. “Thanks, can I have your umbrella?” I shouted back. She laughed and left. My Wander had made a splash—but it couldn’t keep me dry. I ran to the subway, soaked. The bag looked even better wet.

Changing the Status Bag Quo

Everyone loves an ingénue—fashion insiders included. Perhaps that’s why at Paris Fashion Week in September, newer handbags from Bottega Veneta and Loewe jostled for space and street-style flashbulbs.

“These bags, especially ones by independent labels like Khaite, are quieter signals of cultural access,” explained Goor. “Everyone knows what an Hermès Kelly bag is. So now there need to be new signals” beyond traditional status bags to convey power.

Sasha Bikoff Cooper, a Manhattan interior designer, says there’s a less cynical explanation for why these bags have captured celebrity fans—and more important, paying customers. “They’re fresh and also beautiful,” she said. “Hermès is always classic. It’s like a first love. But you want newness, too.”

The Wall Street Journal is not compensated by retailers listed in its articles as outlets for products. Listed retailers frequently are not the sole retail outlets.

Why Businesses Can’t Stop Asking for Tips

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

Some designer handbags like the Hermès Kelly have implied power. But can a purse alone really get you a restaurant table—or even a job?

Changing the Status Bag Quo