Dive Brief:
- Tips as a share of restaurant worker income are declining, according to an ADP report surveying the payment of roughly 100,000 full-service workers in tipped jobs for more than a year.
- Tips comprised 57.4% of the compensation of tipped restaurant workers in September, compared to 67% in August 2021. Base pay for tipped workers has increased since the COVID-19 pandemic, in part because of moves to eliminate the tip credit, according to ADP.
- But the majority of tipped worker compensation is still derived from tips. The median tipped restaurant worker included in the ADP survey earned $14.48 per hour in tips and $10.74 in base pay in September.
Dive Insight:
Base wages have grown in absolute terms by 66% for tipped workers, while tips have increased 23% since January 2020. ADP attributed some of these upticks to efforts to increase the minimum wage in the past four years.
Full-service restaurant workers earn $23.88 an hour plus tips as of September, up 28% from January 2020, though ADP’s survey included workers employed in the same position for 12 months. Given the high labor turnover in the restaurant industry in recent years, it’s possible that experienced workers command a wage premium relative to short-term employees.
The amount of money individual workers receive from tips fell somewhat in 2024, from a high of $15.21 in May, but it’s unclear if this recent trend will continue. In absolute terms, workers receive roughly the same amount in tips as they did in 2023 and 2022.
“As more states increase minimum wages for tipped workers, that makes restaurant worker pay more predictable,” ADP stated in its report. “It also could eat away at full-service restaurant demand as menu prices rise and customers look for ways to lower their bills, such as reducing their tip.”
The report cautioned against drawing early conclusions about the composition of worker income and impacts on pricing and consumer behavior. A recent survey of consumers by Popmenu indicated that the rate customers tip at restaurants is largely steady, despite the increases in menu prices in recent years.
It’s not clear that service sector wage growth would contribute meaningfully to price increases; economic studies suggest firms pass on a relatively small fraction of wage increases, with most businesses using other tactics to adjust to rising costs. Margin growth may have contributed to inflation, according to the Economic Policy Institute.
At the same time, labor’s share of national income, a measure of the relative share of output that workers receive in wages and benefits, has fallen since 2021 and remains modestly below pre-COVID levels, according to Bureau of Labor Statistics data aggregated by the Federal Reserve Bank of St. Louis. That indicates the growth of prices and the economy in recent years did not benefit workers at the expense of other economic stakeholders.
ADP’s report also found significant geographical disparities in compensation across 10 selected metro areas. Median wages for Chicago-area tipped workers grew by 49% over the past four years, for instance, while those of tipped workers in Minneapolis grew by 7%.
Among those urban areas, median tipped workers in the Washington, D.C. area made $4.18 per hour in base pay and $17.58 in tips. Boston had a similar compensation model, with workers taking home 76% of their pay in tips.
Metro areas in California, which does not have a tip credit, have much higher base pay: $17.12 in Los Angeles and $18.67 in San Francisco. Those workers still received more than a third of their compensation in tips, over $10 an hour, indicating that a lack of a tip credit does not eliminate tipping as a social practice.
