Skip The Tips: Why You Don't Need Them

Can you afford to rely on the optional generosity of your clients to pay your bills? That’s a fair question for anyone who accepts tips. Why? Because too many people in the workforce, including licensed beauty professionals, live paycheck to paycheck, or, if self-employed, from day to day with little to no savings for unexpected expenses. If you haven't already considered eliminating tipping in consideration of inclusive pricing, read on to see why your clients may appreciate the change and you may see a boost to your bottom line.

Tip Fatigue

While tipped workers struggle financially, consumers have had enough. The terms “tip fatigue,” “tipflation,” “guilt tipping” and “tip creep” have gone viral. An entire sub-genre of financial reporting has emerged about consumers’ changing attitudes toward tipping. And as you might guess, the changes are not positive, evidenced by this sampling from articles published by the influential business news source CNBC.com: 

• “Two-thirds of Americans have a negative view about tipping, according to a recent Bankrate report, particularly when it comes to contactless and digital payment prompts with options that can range from 15% to 35% for each transaction.” (‘https://www.cnbc.com/2023/08/18/tip-fatigue-is-real-heres-how-much-people-really-tip-post-pandemic.html)
• “You don’t have to tip twice for the same service. Swann has recently heard feedback from women who have tipped the technician who worked on their nails at a salon and were then prompted to tip again when paying at the counter. 'That is just the establishment trying to get more money out of you.'” (https://www.cnbc.com/2023/07/05/etiquette-experts-when-its-ok-not-to-tip.html)
• “Those tip screens may be having the opposite effect. Nearly 20% of people tend to tip less or not at all when presented with a pre-entered tip option, according to a June survey from Bankrate." (https://www.cnbc.com/2023/10/03/why-you-may-be-guilt-tipping.html)
• “Between the high cost of living and uncertain economy, cash-strapped consumers are starting to tip less.” (https://www.cnbc.com/2023/10/03/why-you-may-be-guilt-tipping.html)
• “However, now consumers are prompted to tip in advance — and if they aren’t generous, the service they receive could suffer.” (https://www.cnbc.com/2023/11/17/tipping-once-rewarded-good-service-now-it-predicts-how-youre-treated.html)
• “As the negative sentiment takes hold, some businesses are opting out of digital touch-screen payment systems with predetermined options.” (https://www.cnbc.com/2023/07/05/tipping-culture-is-out-of-control-even-some-businesses-agree.html)

When media outlets do their own research, they come to similar conclusions: “Half of survey respondents who indicated they were tired of tipping either said they don’t feel like it should be their responsibility to pay employees or they felt pressured to tip in the moment.” (https://www.usatoday.com/money/blueprint/credit-cards/tipping-fatigue-growing-in-america/)

Why do so many workers find themselves in the precarious situation of depending on increasingly unpredictable and unpopular tips? To address these very real concerns, we need to understand how we arrived at this moment.

The Origins of Tipping

For those who don’t already know, the practice of tipping can be traced directly to slavery:

• “Tipping proliferated in the United States after the Civil War, when the restaurant and hospitality industries hired newly emancipated Black women and men but offered them no wage–leaving them to rely on patrons’ gratuities for their pay instead. Simply put, tipping was introduced as a way to exploit the labor of former slaves.” (https://www.povertylaw.org/article/the-racist-history-behind-americas-tipping-culture/)
• “Tipping further entrenched a unique and often racialized class structure in service jobs, in which workers must please both customer and employer to earn anything at all.” (https://www.politico.com/magazine/story/2019/07/17/william-barber-tipping-racist-past-227361/)
• “The subminimum wage for tipped workers isn’t simply born of racial injustice; it continues to perpetuate both race and gender inequity today." (https://www.nytimes.com/2021/02/05/opinion/minimum-wage-racism.html)

At this point, you may feel overwhelmed by this information, and I don’t blame you. As a salon owner, employer and licensed manicurist, who also happens to be a generous tipper, I grappled with this topic for years. Is it fair that generous tippers subsidize the true cost of services and doing business, especially labor, while other clients tip less, if at all?

Compensating the True Cost

Clients must compensate the true cost of professional beauty services, including a living wage for the provider.

After my co-host Ashley Gregory and I produced an episode of our podcast titled, "Tipping Point: Should Salons Eliminate Tips?" (Outgrowth: A Slice of Pro Beauty; October 11, 2021), I decided to take immediate action. Planning for the new year, I recalculated service prices, increased my employee’s hourly wage and notified clients in advance via email: “Starting January 2022, new pricing will be in effect and tips, though appreciated, will no longer be accepted to simplify payments, payroll and reporting requirements.” Existing clients responded very favorably, and new clients have praised the transparency of the pricing.

Other colleagues who have experience implementing a no-tipping policy offer their encouragement.

Jill Wright, nail tech and event organizer of the Nail Tech Event of the Smokies, explains the benefits of not accepting tips: “I adopted a ‘no tipping’ policy over two decades ago with no negative repercussions to my income, but with all kinds of positive outcomes. First, it alleviated the clients' stress regarding how much to tip without tipping too much (because they need their hard earned money) or tipping too little (because they didn't want to offend me). Second, it set me apart from all my peers and raised my level of professionalism in my clients' eyes, so I was treated with the utmost respect as an equal. Third, I didn’t have to keep track of tip reporting to the IRS because my prices were what I earned.”

To transition away from tips, Jill used a direct approach: “I simply raised my nail prices to include the average tip and posted my ‘no tipping’ policy in my nail room. I’m not going to lie — It was scary at first, but I have no regrets.”

Salon management consultant Tina Alberino of This Ugly Beauty Business advises beauty licensees to position themselves as professionals: “When I think of us, as an industry family, I consider us close cousins with other qualified professionals in service trades, who also adhere to standards to help keep us all safe — nurses and paramedics, for instance. We would never consider tipping those professionals. Attempting to do so would likely be considered offensive. Instead of continuing to accept tips, we should set prices that accurately reflect the value of the services we deliver and ensure they cover the stable salaries we all deserve, so we too can tell our clients to keep their change. Let's stop perpetuating a system that makes our paychecks dependent on the generosity of others.”

What’s a Tip?

As defined by the Internal Revenue Service (IRS), “Tips are discretionary (optional or extra) payments determined by a customer that employees receive from customers” (Tip Recordkeeping & Reporting). Note that the discretionary nature of tips distinguishes them from service charges. More important, “All tips you receive are income and are subject to federal income tax.”

“If you receive tips as a self-employed person, you should report these tips as income on Schedule C. See Pub. 334, Tax Guide for Small Business, for more information on reporting business income.”

Unlike restaurant owners, salon owners with employees must report and pay their share of taxes on tips collected by their employees. The Professional Beauty Association has been lobbying Congress for an exemption from the FICA taxes for more than 15 years, but that has yet to pass. A recent article from Forbes highlights the unfairness: “The problem for Garland is this: for every $100 in tips an employee collects, Rachel’s owes the IRS $7.65 as the employer’s share of Social Security and Medicare payroll taxes—even though not a penny of that $100 tip goes to the salon, and even though under reporting of tips is widespread in the industry.” (https://www.forbes.com/sites/kellyphillipserb/2023/10/21/taxing-tips-untangling-the-hairy-situation-between-beauty-salons-restaurants-and-the-irs/)

Learn more about tip reporting requirements directly from the IRS: Reporting Tip Income and Tips on Tips: A Guide to Tip Income Reporting.

About the Author: 

Jaime Schrabeck, Ph.D., has been a licensed nail technician for over 30 years, currently as a manicurist and owner of Precision Nails. She is also a renowned educator in the nail industry. She is a member of Nailpro’s Advisory Board.