As the restaurant industry grapples with evolving customer expectations and the ongoing impacts of economic changes, tipped wages remain a critical component of many restaurant workers’ income. According to a recent report from Square, the average restaurant worker in the United States now earns nearly 23% of their income from tips in 2024, slightly up from 22% in 2023. This information presents significant implications for small business owners in the hospitality sector.
In certain states, the reliance on tips can be even more pronounced. For instance, workers in Wyoming, South Dakota, Alaska, and Kansas report that tips constitute a staggering 30% or more of their income. In contrast, areas like Oklahoma, Mississippi, Arkansas, and Nebraska show a markedly lower percentage, suggesting a regional disparity that owners should recognize as they evaluate their staffing models and pay structures.
The report also highlights a nationwide trend regarding average tip percentages. Tipping remains fairly consistent, with the average tip on a restaurant transaction recorded at 15.4% in 2024, slightly down from 15.5% the previous year. Virginia, Iowa, and Delaware lead with the highest average tips—upwards of 17%—while states such as California and Hawaii fall behind, with averages around 14%.
Jeff Litsey, owner of Calvin Fletcher’s Coffee Company in Indianapolis, shared insights from his experience in the industry. “Tips are a way for customers to reward our employees for their service, but our goal is to welcome anyone in, so while tips are highly appreciated, it’s also understandable if tipping isn’t within someone’s budget,” he stated. He emphasized a crucial aspect of their business model: “Our employees are paid well above minimum wage to ensure they’re fairly compensated, with tipping being a smaller portion of their overall take-home pay.”
The findings of this report indicate that while tips serve as an incentive for service staff, many restaurants, particularly smaller establishments, may need to reconsider their pay structures if tipping becomes less prevalent. Litsey pointed out the potential challenges: “If tipping were to go away, we’d need to offset that proportion of staff’s wages with an increase to their base wage, which would have ripple effects throughout our operations.”
For small business owners, the key takeaway is the need to balance competitive pay and customer satisfaction. Incorporating a stable base wage can help alleviate some of the stress associated with relying heavily on tips, but it could also increase costs. Therefore, owners may want to explore strategic adjustments to their pricing models to ensure staff are compensated fairly without deteriorating the dining experience for customers.
As businesses navigate these waters, they might also consider implementing alternative compensation models. For instance, some establishments are experimenting with service charges or no-tipping policies to create a more predictable income stream for employees.
However, transitioning away from traditional tipping practices can be fraught with challenges. It could disrupt long-standing customer expectations and alter interactions in the hospitality space. Owners need to communicate any changes clearly to both employees and customers, ensuring everyone understands the rationale behind their approach.
In conclusion, while tipping remains a significant aspect of restaurant compensation—and a substantial part of many employees’ income—owners should be proactive in assessing how shifts in consumer behavior could impact their business models. By prioritizing fair wages and regularly evaluating their compensation strategies, small business owners can position themselves to thrive in an evolving industry landscape. For more detailed insights from the Square report, check out the full release at Square’s Press Room.
Image Via Envato: AlbertoCarrera
