Tipflation and Its Impact on Restaurant Tipping

Restaurant tipping is all over the news because of “Tipflation”.

Inflationary pressures and an increase in businesses allowing for tips have created a tipping point for consumers — a point that could be particularly impactful to restaurant employees that rely on tips for the majority of their take-home pay.

The average server salary is around $31,000 per year on the high end, which is below the median cost of living for every state in the country as of 2023. 

With that in mind, any changes in average tip amounts in the food service industry could impact restaurateur wage strategies as well as employee take-home pay — which may also have a knock-on impact to restaurant turnover rates and employee longevity in the industry.

In this article, you’ll learn:

• What exactly tipflation is
• Why it’s gained popularity
• How it’s actually impacting restaurants
• What operators can do to encourage greater guest experiences and influence steady tipping.

Combating tipflation can be critical for restaurants in America

Many restaurants depend on customer tips to cover a majority of employee take-home pay — particularly tipped employees in full-service service restaurants where the federal minimum hourly wage for tipped employees is $2.13.

And the same federal tipped minimum wage regulation mandates restaurants to ensure servers make an average hourly take-home wage of at least $7.25/hour — so if tips plus the $2.13 don’t add up to $7.25/hr, then restaurants have to make up the difference. 

On a 40-hour week, an employee paid the tipped minimum wage must make at least $205 in tips over that week for the employer to avoid providing additional wages. However, many states and cities are starting to require higher direct wages  for tipped employees.

While the average annual server salary floats around $31,000 on the higher end, the bare minimum annual salary a server can legally make is $15,080 ($7.25/hour guaranteed x 40 hour week x 52 weeks in a year.)

Given these numbers, restaurant tips are indispensable to the industry and its workers.

What is tipflation in the restaurant industry?

Tipflation is a jargon word that combines “tip” and “inflation” — alluding to businesses asking for higher tip percentages than previously as well as more businesses asking for tips in general.

Tipflation from higher suggested tip amounts

Increases in suggested tipping amounts on digital screens may be souring restaurant tipping percentages and contributing to tipflation. 

Research from PYMNTS found that one in three consumers has noticed that tip suggestions are higher than they used to be.

And according to data from Pew Research, only a quarter of consumers they surveyed favor (24%) businesses suggesting tip amounts to their customers – for example, on the bill or on a checkout screen. Another 32% neither favor nor oppose the practice.

Tip fatigue from more business types requesting tips

From a frequency perspective, research from Capterra found that 53% of surveyed consumers have encountered a tip screen at a business that didn’t previously ask for tips.

The same Pew Research found that 72% of U.S. adults they surveyed say tipping is expected in more places today than it was five years ago.

This increase in tipping requests has created a tip creep that may be also contributing to tipflation. 

Other factors contributing to tipflation and tipping burnout

It’s also possible that many Americans are burnt out and may now have a negative view of tipping after the pressure they felt to tip restaurant workers more during the pandemic.

Shubhranshu Singh, a professor at Johns Hopkins Business school, confirms this link to the pandemic in an NPR article. He says we started tipping service workers as well as businesses we didn't previously tip, and we started them more than usual in general. Singh points out that the pandemic went away, but tipping expectations remained.

Inflation may have also contributed to this sensitivity and increased awareness — consumers may be less likely to tip as much or at all if they have less discretionary income to spend. 

The recent advent of restaurant service charges may also have an effect on how well people tip.

Are restaurants actually feeling the effect of tip fatigue?

According to the Pew Research tipping report, Americans’ tipping behaviors vary widely by situation.

Here’s the breakdown of when Pew Research’s recent survey and when respondents said they would always or often leave a tip based on different restaurant scenarios: 

• Eating at sit-down restaurants (92%)

• Ordering food delivery (76%)

• Buying a drink at a bar (70%)

• Buying a coffee (25%)

• Eating at a fast-casual restaurant (12%)

Actual tipping data counteracting consumer sentiment data

While those numbers may look harsh, Toast’s Q3 2023 Restaurant Trends Report has a positive look on actual restaurant tipping.

Total tips for restaurants we observed on the Toast platform averaged 18.9% of total check amounts in Q3 2023, the same as Q2 2023.

Full-service restaurants (FSR) tips remained steady at an average of 19.4% in Q3 2023. And quick-service restaurant (QSR) tips remained steady at an average of 16.1%.

FSRs are traditional, sit-down restaurants with table service. Gratuity at these places is typically administered to servers via cash or credit card receipts.

QSR restaurants can include counter-service coffee shops, delis, and other such establishments. Tipping options here can include cash in a tip jar or via tipping prompts on tablets or kiosks.

In addition to tipping rates remaining steady this quarter, another good sign for tipped employees is that people choosing to tip on a card or digital transaction is not dropping.

Approximately two-thirds (66.6%) of card or digital transactions on the Toast platform in Q3 2023 included a tip, up from 64.7% in Q3 2021.

QSR restaurants and cafes and bakeries both had a lower average of tips being added to a card or digital transaction as compared to the average of total tips on the Toast platform, but both types of eateries have also seen growth in the percentage of people tipping on transactions in the last two years.

Tips to manage tipflation while protecting staff take-home pay

If the current tipflation sentiment grows, restaurant operators may look for ways to lessen its impact on their operation and on employee take-home pay.

The Pew Research study reports that 77% of U.S. adults say the quality of the service they receive is a major factor in deciding whether and how much to tip — far more than any other factors that respondents were asked about.

Here are a few tips for restaurant operators and employees to manage tipflation and encourage a healthy, beneficial tipping culture for your staff. 

1. Improve restaurant management and training to encourage healthy tipping

Restaurant operators and managers can optimize training and day-to-day management procedures to help tipped employees deliver delightful guest experiences.

Determining how to manage a restaurant staff well will look different for every operation, though it’s critical to understand your restaurant employees’ behaviors and preferences for coaching.

Toast is the point of sale system built for restaurants. We conducted an online blinded survey between February 27, 2023 - March 19, 2023 of 1,011 current restaurant employees.

Here are some key findings that can help restaurant managers enable tipped staff to succeed.

Experience is abundant in the industry — as 71% of restaurant employees have worked at a restaurant prior to their current job. 

This experience can be good or bad, as managers can potentially lean on more experienced new hires to operate independently and even help others excel. 

On the flip side, this experience could mean there are some bad habits from previous establishments that need to be unlearned.

Two weeks or more of training is the sweet spot for successful staff sentiment — though nearly three-quarters of restaurant staff (74%) receive two weeks or less of training and onboarding. 

There are tons of components that restaurateurs and managers can train staff on to help upskill them. 

Consider practical training on operational best practices, upskilling staff on food and beverage knowledge, and even improving soft skills and guest interactions via emotional intelligence, empathy, and other sales training.

Most restaurant employees (46%) are motivated by making money and supporting their lifestyle — while 18% of restaurant employees are motivated by career development and growth within the restaurant industry.

Tipped staff members from these two cohorts may be especially likely to buy-in to honing their skills as a server and consistently earning more tips.

2. Evaluate how you distribute tips in your restaurant

Successful tip distribution could help boost employee retention and create greater buy-in amongst all staff members. And of course, the opposite could be true if there’s a lack of consistency or any neglect or bad intent with tip distribution.

There are three common ways that today’s restaurant operators are distributing tips back to employees.

1. Tipped employees keep their tips. This one is as simple as it sounds — whatever tips an employee makes during their shift, they get to keep.

2. Tip pooling groups all the tips that tipped employees earn and splits them, usually evenly, at the end of a certain time frame. This can create a more equitable take-home pay rate for tipped employees, though there are many local, state, and federal regulations that operators need to consider.

3. Tip sharing is similar to tip pooling. The difference is that with tip sharing, a group of tipped employees contributes a portion of their tips to non-tipped employees. This is common in full-service restaurants where servers have a support team, such as bussers and food runners or bartenders who have barbacks. With tip sharing, tips are doled out using percentages that vary based on position. Again, there are many local, state, and federal regulations that operators need to consider.

There’s no right answer to the question of how to distribute tips. It’s important for restaurant owners and managers to be transparent in their choices and consistent with its implementation.

3. Encouraging more tips with the tech-driven service models

What if a single adjustment could improve guest and employee experiences while saving on labor costs? 

Sounds too good to be true until you dive into the New Steps of Service. Toast’s New Steps of Service is a streamlined service model that can empower guests to order and pay at the table whenever they like. 

This tech-driven approach can help increase the efficiency of your front-of-house staff by freeing them from terminals and keeping them on the floor amongst staff.

The New Steps of Service model relies on the harmony of unique technology-driven workflows that:

• Satisfy evolving customer preferences by offering multiple self-serve options for placing orders once as well as throughout the dining experience.

• Provide flexible payment for customers to check out when and how they want.

• Boost employee efficiency by giving staff handheld POS systems that keep them on the floor with guests — enabling fewer staff to work per shift, thus increasing their share of tips.

The benefits extend across all operations, whether traditional, sit-down dining establishments or quick-service, counter-based restaurants.

Explore how restaurant technology can help manage tips 

There are a few ways that technology can help restaurant operators and their staff manage tip distribution and report.

Managing tips across your team can quickly become a time-consuming and confusing process. 

Implementing modern tip management software for your restaurant can give you peace of mind. You’ll know your tip policies are being systematically followed, saving you and your employees the time and hassle of performing manual calculations.

Tip management software — such as Toast Tips Manager — can give tipped staff the reporting they need to see how their tips are distributed. This can also ease payroll processes for operators and bookkeepers.

Easy-to-use payroll and team management software — such as Toast Payroll and Team Management — can integrates with tip management tools. This integration helps give you transparency and visibility into fluctuations in weekly labor costs, tip pooling breakdowns, payroll taxes, and deductions.

Toast is here to help with restaurant employee management

Whether it’s for restaurant point of sale, Payroll, Scheduling, New Steps of Service, or other restaurant management tools, Toast is here to help. 

The Toast platform provides essential functionality, automations, processes, and efficiencies that can help restaurateurs and managers encourage lower employee turnover rates and boost retention.

Reach out today to learn more, schedule a demo, or expand your suite of Toast products.

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