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Document Type

Article

Abstract

No law in the United States requires or prohibits customers from tipping employees for satisfactory service. Tip income is typically regarded as belonging to employees and may not be appropriated by the employer. Tipping is a widespread phenomenon in certain settings–restaurants, hotels, and gambling casinos. It is a form of performance-based variable compensation that is generally not found elsewhere in this country, where employees generally prefer fixed incomes over a defined period. As a general matter, our laws allow tipping but regulate the sharing of tip income among employees. In the restaurant setting, tip-pooling occurs when tips received by one employee are shared to some extent with other employees. For example, waitstaff at a restaurant might pool tips only with other waiters; this is legally permitted. A broader arrangement, that is presently not allowed, would be an employer policy providing for the sharing of tips beyond the waitstaff to include those who bus the tables or work in the kitchen. The U.S. tipping norm is under challenge. A growing number of restaurant owners in big cities are moving to ban tipping and instead raise prices. They argue that existing law precludes them from sharing tips with back-of-the-house employees (like chefs and dishwashers), and thus makes it hard to compensate those employees fairly for their contribution to the joint endeavor. We argue that the movement against tipping is ill-advised. Voluntary tipping is a valuable social institution that allows customers to monitor service where management cannot readily do so. The better answer to a flat-out tipping ban is to remove legal restrictions on tip-pooling. Pooling tips among a broad swath of employees (other than ownership-level employees) helps promote the cooperative endeavor underlying the provision of service in settings like restaurants.

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