Key takeaways

1. The share of businesses paying tips to their employees has grown significantly in specialty food stores like bakeries and coffee shops. Since July 2019 the share of bakeries paying tips to their employees increased from about 36% to nearly 50% this summer. 
2. Retail businesses, who were previously unlikely to accept tips from customers, have begun to pay tips in recent years. In July 2019, less than 4% of retail stores requested tips from their customers, compared to over 7% in July 2024 – an increase of nearly 75% in five years.
3. Since 2019, tipping has decreased steadily in sectors where it used to be a mainstay such as restaurants and hotels. The share of accommodations businesses paying tips to their employees decreased 13% since July 2019.
4. Paying tips may allow small business owners to compete for talent by offering wages beyond what they might otherwise be able to afford. While increased wages are good for the employees, some businesses – especially small and medium sized businesses that are already running on tight margins – may not be able to compete for employees on base wage alone.

A new tipping trend

Consumers in the U.S. typically expect to pay tips to show appreciation for service received in places like restaurants, hotels, and barber shops. However, in recent years, shoppers have noticed tipping requests pop up in new places: tablets being presented when purchasing a coffee, a tip request when purchasing a scoop of ice cream, or a pop up reminder to leave a tip while online shopping.

This can be surprising for customers, who expect to tip after receiving good service at a restaurant, but are unclear about the expectations for tipping in these situations. Recent trends using Gusto payroll information from 300,000 small and medium sized businesses confirm that tipping has increased in unlikely places and that employers may be using these tips to control labor costs.

Specialty food stores lead the way

Tipping has increased in specialty food stores like bakeries, coffee shops, and ice cream shops since 2019. Since July 2019 the share of bakeries paying tips to their employees increased from about 36% to nearly 50% this summer. This trend is not limited to only a handful of food shops either. Many people stop to buy coffee every morning, and during the same time period, the share of coffee shops accepting tips increased from 56% to 72% – an increase of 28% in five years. 

Each month, more specialty food stores accept and pay tips to their employees. However, many customers already expected to pay tips at many of these businesses. Tip jars have been ubiquitous at coffee shops for a long time and they provide an opportunity for customers to show their appreciation to the people who they see every day. While the share of these businesses accepting tips has increased in recent years, tipping is also popping up in new areas of the economy.

Retail stores join the tipping movement

In July 2019, less than 3.5% of retail stores requested tips from their customers, compared to over 6% in July 2024 – an increase of nearly 75% in five years. In the same period, there was an increase of 50% in specialty stores – like florists or record shops – and a 40% increase in health stores accepting and paying tips to their employees. While these shares still remain small, customers interact with these businesses every day so even a small increase is noticeable for the average customer. This likely contributes to frustration experienced by many when prompted to tip. 

Tipping is at or below 2019 levels at hospitality businesses

While tipping rates have increased at specialty food stores and retail businesses, tipping at hospitality businesses – those where customers have traditionally expected to tip – have not returned to their 2019 levels. The share of accommodations businesses paying tips to their employees decreased 5% since July 2019. Breaking it down, 2% fewer full-service restaurants paid tips in 2024 than in 2019, and 10% fewer personal services businesses – like barber shops – are paying tips to their employees.

Employees in these industries typically depend on tips as a regular part of their income, but businesses may be opting to forego tips as some jurisdictions begin to phase out the tipped minimum wage. Additionally, it has become more common for some restaurants to add a service charge to the bill instead of relying on customers to leave tips.

Businesses paying tips may be trying to control labor costs

Much of the past three years has been dominated by a tight labor market. Employees could find a new job, often offering hiring pay, relatively easily. While increased wages are good for the employees, some businesses – especially small and medium sized businesses that are already running on tight margins – may not be able to compete for employees on base wage alone.

Allowing employees to earn and accept tips may be a way for small businesses to alleviate some of the upward wage pressure for finding and retaining workers. The chart above shows the average monthly wage in the retail industry separated by employers that pay tips (the dark maroon lines) and employers that do not pay tips (orange line). After accounting for tips in an employees’ monthly pay, the difference between tipped and non-tipped jobs is cut in half. 

While much of the initial wage growth in 2022 and 2023 has cooled, inflation adjusted wages in July 2024 are still 3% higher than in July 2019 for the median worker. Paying higher wages may be particularly difficult for small- and medium-sized businesses who may not be able to afford wages at the levels of larger businesses. Allowing employees to accept tips may provide opportunities for small business owners to attract and retain talent. 

The story looks a little different for coffee shops, where average total pay at tipped businesses exceeds the total pay at non-tipped businesses. However, in September 2022, the gap between the total pay among tipped businesses and businesses that did not pay tips was at its widest point – over $400 per month for the average employee. Starting then, employers who pay tips kept their base pay relatively flat while coffee shops that do not pay tips had to dramatically increase their average pay by nearly 30% in order to compete for employees. Non-tipping coffee shops incurred significant additional labor costs as they tried to catch up to the wages earned by employees at tipped firms.

Meanwhile, coffee shops that paid tips kept their base pay relatively constant without their employees seeing a decrease in pay – the total wages for these employees stayed relatively constant over the last two years as tipping provided consistently higher income for employees.

Conclusion

Consumers are right to feel that they are being asked to tip more – the share of employers paying tips to their employees has increased significantly in the last five years and tipping has begun to show up in new industries. However, tipping may provide an opportunity for small and medium businesses to compete for talent by increasing pay beyond what they might otherwise be able to afford.

Methodology

In this analysis we identify a company as offering tips if any employee on payroll receives a tip in that month. Our work is limited to only tips that are reported on an employer’s payroll, and thus we might actually understate the ubiquity of unreported tips (like cash left on a table or a tip jar left on a counter that might not be reported to payroll).

Many tipped employees are paid hourly, which leads to wage volatility based on seasonal needs or a business’s schedule. To account for that, we report average monthly wage as the three-month rolling average in each month to account.

The referenced industries above align with the following NAICS codes.