How Much Should You Be Tipping?

There was an excellent story written a few years ago interviewing Michael Lynn, who had written more than 50 papers on tipping.  In his excerpts (source: PBS) he said there are five basic motives for tipping.

Some people tip to show off. Some people tip to help the server, to supplement their income and make them happy. Some people tip to get future service. And then other people tip to avoid disapproval: You don’t want the server to think badly of you. And some people tip out of a sense of duty.

There are people who tip to reward servers for service. If the server does a great job, I want to express my gratitude so that is another motivation for tipping. But how strong is that motivation? My research suggests it’s not terribly strong. I find the relationship is so weak that it would be wrong to use tipping as a measure of service quality.

People often say that’s their major motivation for tipping if you were to ask them. But when we ask people how much they tipped and how they would rate the quality of the service, less than four percent of the differences in tips left by different dining parties can be explained by their ratings of service quality. So the real question is, are you required to give someone a tip?

You aren’t ever required to give someone a tip, but let’s face facts that it is part of our culture.  Many restaurants have tried to apply a no tipping policy, including famous restauranteurs Danny Meyer and Thomas Keller. However, the reality is studies have shown that no tipping policies lead to higher staff turnover and lower online ratings.

In America today, more than 20 states still operate where workers such as servers, bartenders, and valet parkers earn $2.13 per hour.  These folks who are the backbone of our service industry rely on the tips we give them in order to pay their bills and feed their families. Minimum Wage Across America

There are lots of ways to calculate a tip and no predominant method has been proven to be ‘the’ method to use for tipping when you go to a restaurant.  I’ve always used the pre-tax method, where I tip 20% to 25% of the pre-tax amount on the bill.  However, some people either use the double tax method where you double the sales tax for the tip, or the divide by six method which gets you around the average percentage tip in American of 16.66%.

Of course, you have to be careful in some circumstances to double tip.  Some restaurants require a guaranteed gratuity if you have a party of six or eight or more, and hotels generally apply an 18% to 25% gratuity for room service when it is ordered.  You can certainly tip more by filling out the additional tip line, but this means in some cases you’ll be tipping 40% to 50%, so I just recommend you ask the question in advance as to whether gratuity is included, or if it is not included.

Some of us have a hard time calculating tipping amounts, so there are some great apps that are out there.  Tip Check is an easy one you can download for iOS or Android to help you calculate a simple tip.  If you go out with groups of friends often and split up bills, there is an app called Settle Up and one called Tab that can help you make sure everyone is tipping the right amount.  If you don’t carry a ton of cash on you, then you can download an app called GratZeez that helps you give gratuities electronically on the fly.

So, when is it a bad time to tip?  Some of us believe it’s just bad karma to stiff someone and other times it seems downright insulting that someone wants you to tip.  I don’t personally like the homeless tip jars at some shops and cafes that I see, and I don’t care for paying an 18% tip when I’m taking the food back to my seat and cleaning up my own trash.

Ironically, Europe is where tips were invented and now it is discouraged today.  Given that we are a capitalist society and people want to get paid when they perform, I don’t think you’ll see tipping end anytime soon.  Whether you are an over tipper, or you are the cheapskate, these are some smart money moves you can use when it comes to tipping!

Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®  
Co-CEO and Founder oXYGen Financial, Inc.

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About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves

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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

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