The Latest Tipping Trends in the SMB Economy

Key Findings

• Tipping continues to rise since 2020: From 2019 through 2020, tips raised hourly workers’ pay by 20 to 21 percent. In the years since the pandemic, however, tips have consistently raised wages by 25% or more. In May 2023, the average hourly worker in Personal Services earned $18.38 per hour in base wages and $4.23 per hour in tips.
• Tips raise bar and restaurant workers’ pay the most: Tips play a much greater role in certain specific industries, with bars and restaurants at the top. Within drinking spots, including tips results in earnings 2.8 times higher than base pay, and within restaurants, tips raise pay by 1.6 times. 
• Tipping is on the rise at fast-casual spots and coffee shops: Within the restaurant industry, tips are rising fastest as a share of compensation among limited-service restaurants and other eating establishments (i.e. bakeries and coffee shops), rather than full-service restaurants, where tipping is more traditional. For instance, in March 2020, tipping increased fast-casual restaurant employee’s pay 1.2 times, and in May 2023, it now increases pay 1.3 times. 
• Tipping on the rise among workers in performing arts and sports instructors: the list of industries where tips have increased the most since 2020 is topped by Performing Arts workers, including theater performers and musicians. Tips are also playing a larger part in pay for workers at athletic camps and sports instructors.

Despite high inflation squeezing consumers’ pocketbooks and increased conversation of “tipping fatigue,” customers continue to tip at higher rates – and the trend boosting workers’ wages in the process. 

In this post, we use data from Gusto’s 300,000+ small and midsized businesses to examine trends in tipped compensation among hourly workers in the Personal Services sectors. We quantify how much tips have risen as a share of pay for these workers –  along with the specific industries where tips are growing the fastest.

Tips Account for a Larger Share of Pay Today than Pre-Pandemic

Overall, tipping continues to play a larger role in compensation in the years after the pandemic, even as overall base wages for service-sector workers have been rising at historic rates. In March 2020, tips raised workers’ hourly wages by 21%, a rate it had held steady at going back to January 2019. After dropping in the months immediately following the onset pandemic, tips rose to make up a consistently large share of wages beginning in mid-2021. Currently, in May 2023, tips boosted wages by 25%.

This increased role of tips in overall compensation comes even as base wages are rising for workers in these industries, amid widespread worker shortages since the pandemic. From March 2020 to May 2023, hourly wages (outside of tips) rose 18% for employees in these sectors (from $14.25 per hour to $16.64). Tips, however, rose 42%, up from $2.98/hr to $4.23/hr.

In Bars and Restaurants, Tips Can Double or Triple Pay

Even as, on average, tips are boosting wages by 25%, there are specific sectors where tips play an even larger role. The table below lists the top five industries where tips raise overall wages to the greatest degree (at the 4-digit NAICS code level). In bars (“drinking places”)  and restaurants, including tips can double or nearly triple a worker’s take-home pay. 

At bars, a worker earned on average $7.57/hr in base pay, but $13.33/hr in tips. Including tips in total pay raises wages to $20.90/hr, 2.76 times as high as the employee’s base pay. Similarly, including tips in a restaurant worker’s average pay boosted wages by 1.6 times.

Industries where tips increase workers’ pay the most, May 2023

Subsector	Tip Multiple (How Much Wages Increase Tips)	Base Wages (outside of tips) per hour	Tips per hour	Total Earnings per hour
Drinking Places (Alcoholic Beverages)	2.76	$7.57	$13.33	$20.90
Restaurants and other eating places	1.60	$11.05	$6.64	$17.69
Performing Arts, Sports, and Similar Events	1.22	$18.01	$3.97	$21.97
Special Food Services (i.e. served at the customer’s location or on a motorized cart)	1.14	$18.09	$2.52	$20.61
Personal Care Services Barbers and Beauty Shops)	1.14	$35.83	$4.97	$40.80

Tips are also rising the most in Performing Arts, Bars, and Eating Spots

Over the last three years, those industries listed above are also the places where tips have increased the most. In March 2020, tips raised pay among workers in Performing Arts (largely performers in theaters and music or arts festivals) by 9%, which has risen to 22% today. Tips among restaurants made up 51% of a worker’s earnings in 2020, but 60% today.

Looking within the restaurant industry, we can separate Full-Service Restaurants from both Limited-Service restaurants (i.e. fast casual) and Snack and Nonalcoholic Beverage Bars (i.e. bakeries or coffee shops). Over this time, the rise in tipping within the food-service industry is much larger outside of full-service restaurants, where tipping is more traditional. As depicted in the figure below, from March 2020 to May 2023, tipping at limited-service restaurants grew 8% as a share of compensation. At places such as coffee shops, it grew by 7%, while tips grew only 3% at full-service restaurants.

Finally, tips are playing a more prominent role today in certain industries where they did not before the pandemic. Among workers in Spectator Sports – which includes places like athletic clubs, camps, and sports instructors – before the pandemic, tips increased earnings by just 1%, but now they boost pay by a modest 5%.

Industries where tips have become a larger part of workers’ pay (March 2020 – May 2023)

Subsector	Tip Multiple, May 2023	Tip Multiple, March 2020	Difference in Tip Multiple
Performing Arts, Sports, and Similar Events	1.22	1.09	+0.13
Drinking Places (Alcoholic Beverages)	2.76	2.63	+0.13
Restaurants and other eating places	1.60	1.51	+0.09
Full-Service Restaurants	1.89	1.86	+0.03
Limited-Service Restaurants	1.30	1.22	+0.08
Snack and Nonalcoholic Beverage Bars	1.31	1.24	+0.07
Special Food Services (i.e. served at the customer’s location or on a motorized cart)	1.14	1.05	+0.09
Spectator Sports	1.05	1.01	+0.04

Methodology

Data analyzed here is restricted to hourly employees in three NAICS sectors: 71 (Arts, Entertainment, and Recreation), 72 (Accommodation and Food Services), and 81 (Other Services). Tipping compensation covers any tips reported on a worker’s paycheck, including cash tips reported as compensation or paycheck tips (i.e. those through a tip-splitting tool).