Tipping in restaurants fell for the first time since 2020

Tipping 20% at a sit-down restaurant is still the standard in the U.S., according to most etiquette experts — diners disagree.

After holding steady for years, tipping at full-service restaurants fell to 19.4% in the second quarter of 2023, according to online restaurant platform Toast’s most recent restaurant trends report, notching the lowest average since the start of the Covid-19 pandemic.

“Tip fatigue” is largely to blame, the report found.

“During Covid, everyone was feeling generous,” said Eric Plam, founder and CEO of San Francisco-based startup Uptip, which aims to facilitate cashless tipping. 

“The problem is that it reached a new standard that we all couldn’t really live with,” he added, particularly when it comes to tipping prompts at a wider range of establishments, a trend also referred to as “tip creep.”

With more opportunities to tip and predetermined point-of-sale options that can range between 15% and 35% for each transaction, gratuity became less about rewarding good service, he said.

Now, consumers are pushing back.

Two-thirds of Americans have a negative view of tipping, according to a recent report by Bankrate, especially when it comes to contactless and digital payment prompts. 

Higher prices due to persistent inflation have also left more consumers feeling cash-strapped.

Further, the increasing use of surcharges has played a role, according to Toast. Fees for restaurant employee health insurance, credit card transactions and even tap water make diners want to leave less on the total tab, Plam said. “They don’t need to tip as much if they’re covering health care,” he said. “That’s the quick calculation.”

These days, fewer consumers also said they “always” tip when dining out compared to last year, according to Bankrate, or for other services, such as ride-hailing services, haircuts, food delivery, housekeeping and home repairs.

Yet, since transactions are increasingly cashless, having a method to tip workers in the service industry earning minimum wage or less than minimum wage is critical, Plam added.

Under federal law, employers can pay workers as little as $2.13 per hour — much less than the minimum wage — if the tips they receive bring them up to a baseline salary. Some states are now increasing the hourly minimum wage for tipped employees or have eliminated tipping wages altogether.

For restaurant workers, tips can boost wages about 90%, according to data provided to CNBC from payroll platform Gusto.

Still, tips are down slightly from a year ago, Gusto also found.

“What we are seeing is a settling at a lower level in the wake of the post-pandemic surge,” said Luke Pardue, an economist at Gusto. 

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