Most diners have no problem leaving a nice tip for a good server, but if the extra cash is going back to the restaurant as a whole, they’re less likely to be generous.
That’s one of the findings of a recent study published in the Journal of Business Research by Colorado State University College of Business marketing professors Chris Berry and Doug Hoffman, who surveyed hundreds of people about how they’d tip in a variety of situations ranging from full business ownership of tips to pooling between employees.
“Basically, consumers are uncomfortable with paying extra money to a business when typically, they perceive a tip as going toward the workers,” Berry said. “That is, if the business takes ownership of tips, they perceive that the restaurant is not appropriately concerned with their employees’ well-being.”
Meanwhile, rising costs associated with inflation, higher minimum wages across the country and staff shortages have led many business owners to get creative about maintaining staff morale and their bottom line.
“Communicating intent: Effects of employer-controlled tipping strategy disclosures on tip amount and firm evaluations“
Chris Berry and Douglas Hoffman, CSU College of Business
Journal of Business Research
Hoffman says some owners have adapted by adding surcharges to their receipts, with rationales ranging from the COVID-19 pandemic to subsidized health care for their employees – and that’s not the only way customers are unknowingly paying for a changing business climate either.
“Restaurants are doing everything they can to not raise their menu prices,” Hoffman said. “But not raising those prices means they have to offset their costs in another way – and that’s where redirecting tips and adding surcharges comes in.”
In addition to closing pay gaps between the tipped employees at the front of the house and the workers in the kitchen, business control over tips could also go toward offsetting operating costs.
This comes with a caveat: While business ownership of tips had negative consequences in terms of consumer behavior, telling customers about tip pooling had the opposite effect.
Indeed, they found that when businesses disclose they are pooling tips among servers and support staff, customers are more likely to leave better tips.
“My advice for restaurants is this: If you’re taking ownership of tips, take caution,” Berry said.
Is tipping getting out of hand?
Berry and Hoffman’s research comes amid a larger conversation about tipping practices in the U.S., with many people questioning the ubiquitousness of iPad tipping for services ranging from picking up to-go orders to even buying water from the airport.
“It’s gotten to the point where it’s really started to raise eyebrows,” Hoffman said. “What are we paying for, and is the constant asking for tips going to impact peoples’ behavior in the long-term?”
Then, there’s the question of transparency in general.
“I know as a customer anecdotally, I like to know where a tip is going, and as we’ve learned, customers like transparency about who is benefitting from their generosity – especially when technology is involved,” Hoffman said. “Customers also like to feel that their tip is contributing to the well-being of employees.”
But, there’s also that social pressure that arises when an iPad is turned in your direction and an employee casually says it’s “just going to ask you a few questions.” That compounded with a minimum tipping percentage that’s often set at 20% has customers wondering about the new social norms.
“Tipping was good during COVID,” Hoffman said. “You were helping out local businesses and employees that were trying to scrape out a living. But what happened was that as everyone got so generous, others who don’t usually receive a form of a gratuity said, ‘Let’s provide people with the ability to tip.’”
Hoffman and Berry said they plan to continue to research tipping behavior, as well as the service fees and surcharges that have become increasingly common on restaurant bills.
“At what point do consumers say, ‘enough is enough?’” Hoffman said.
The College of Business at Colorado State University is focused on using business to create a better world.
As an AACSB-accredited business school, the College is among the top five percent of business colleges worldwide, providing programs and career support services to more than 2,500 undergraduate and 1,300 graduate students. Faculty help students across our top-ranked on-campus and online programs develop the knowledge, skills and values to navigate a rapidly evolving business world and address global challenges with sustainable business solutions. Our students are known for their creativity, work ethic and resilience—resulting in an undergraduate job offer and placement rate of over 90% within 90 days of graduation.
The College’s highly ranked programs include its Online MBA, which has been recognized as the No. 1 program in Colorado for five years running by U.S. News and World Report and achieved No. 16 for employability worldwide from QS Quacquarelli Symonds. The College’s Impact MBA is also ranked by Corporate Knights as a Top 20 “Better World MBA” worldwide.
