The Great Tipping Debate: How Restaurants Are Navigating America's Evolving Gratuity Landscape

The American restaurant industry stands at a crossroads of tradition and transformation, particularly when it comes to tipping.

In 2025, political conversations around gratuity have intensified as restaurants face multiple pressures: evolving tip credit regulations and shifting consumer sentiment around tipping culture, to name a few. These challenges are forcing operators to reimagine their entire approach to service charges and staff compensation.

The stakes are particularly high as restaurants try to balance fair compensation for workers with sustainable business practices. The traditional tipping model, long a cornerstone of American dining culture, is under scrutiny from all sides – legislators, workers, and increasingly vocal consumers who are experiencing what many in the industry call "tip fatigue."

To understand how restaurants are navigating these changes, we spoke with operators across the country, including Robbie Soskin of Yum Kitchen, Shaz Khan of Tono Pizzeria + Cheesesteaks, Jefferson Macklin of Bar Mezzana, and several other industry veterans. Their insights reveal both the complexity of the current tipping landscape and innovative approaches to addressing its challenges.

The Changing Tipping Landscape

Tip Credits Face New Scrutiny

The regulatory landscape around tipping has become increasingly complex, with state-by-state variations creating a maze of compliance challenges for restaurant operators. The end of the federal 80/20 rule, which governed how much time tipped employees could spend on non-tipped work, has added another layer of complexity to an already challenging situation.

In Minnesota the rules are particularly strict. "Minnesota has very strict laws on we can't share tips with anybody who's back of the house," explains Robbie Soskin of Yum Kitchen. It's a common frustration – wanting to reward your entire team fairly, but being handcuffed by regulations that don't reflect how restaurants actually operate. These limitations create operational challenges, especially for restaurants trying to ensure equitable compensation across all staff members.

The situation becomes even more complicated in counter-service models. Shaz Khan of Tono Pizzeria + Cheesesteaks explains: "The only qualifying individuals for tips are direct service employees. With our counter service model, there's 10 people behind every order, but I can't give all the tips to the cashier, even though that's what the law suggests."

The result is regulatory uncertainty that leaves businesses vulnerable: "It creates this gray area where they can slam you anytime they want."

This ambiguity forces restaurateurs to choose between strict legal compliance that may seem unfair to their teams, or adopting alternative compensation models that avoid tips altogether. Many operators, like Robbie Soskin, report that regulatory confusion has become an acute challenge for their business. 

Consumer Sentiment Shifts

The industry is witnessing a significant shift in consumer attitudes toward tipping, with many guests experiencing what's been dubbed "tip fatigue." Many credit this to the COVID-19 pandemic, where services that typically didn't ask for tips began to, leading to pushback from consumers.

Jefferson Macklin, Partner at Bar Mezzana in Boston, MA explained, "We've seen that the tip fatigue is real. Even in fine dining, where people expect the tip, we're fighting that battle."

This fatigue is particularly noticeable in casual settings and counter-service establishments. "You go out to a place to pick up something… and you're expected to tip, and you feel like a jerk if you don't," Macklin notes. "I definitely have sensed that increase in [the] last year, that the guests are pushing back a lot more on a lot of things."

Recent data from Toast backs up these anecdotes. 

While 79% of respondents are willing to tip a server who visits their table, only 17% are willing to tip if they place their order at a counter and just 12% are willing to tip at a drive-thru.¹ Guests are noticing more frequent prompts to tip: 52% of respondents report seeing tip requests more frequently than six months prior, and 48% feel they're being asked to leave bigger tips.

This consumer sentiment is beginning to impact actual tipping behavior. The most recent data from Toast shows that tips at full-service restaurants averaged 19.3% in Q3 2024, while tips at quick-service restaurants, where guests may be less inclined to tip due to the difference in service, averaged 15.8%. This is down from a pandemic high of 16.5% in 2021.²

Tips leveling off at restaurants is likely due to a combination of factors, including prices, people being more conscious about their discretionary spending, changes in minimum wage laws, and being asked to tip at more establishments than previously.

How Restaurants Are Adapting

Innovative Staff Compensation Models

Faced with these challenges, restaurants are exploring new compensation models to create more equitable and sustainable systems.

No-Tipping Pioneers

Some establishments are taking the bold step of eliminating tipping altogether.

Tono Pizzeria + Cheesesteaks decided this was the right move for their business , as Khan explains: 

"We actually did away with tipping on our end, just because of the administrative burdens. In lieu of that, we implemented wage increases and a bonus program." Their performative bonus program includes quarterly reviews that qualify staff for different tiers of profit sharing at the managerial level, creating a more predictable income stream for employees while simplifying compliance requirements.

Points-Based Compensation

Other restaurants are implementing sophisticated points systems to create clear career progression paths. 

"Everybody has points in the pool, but the points can be different levels," explains Jefferson Macklin. "You can be a 15 point server, a 17 point server, 20 point server. The only way to attain becoming a 20 point server is by passing skill tests." This system not only provides fair compensation but also incentivizes professional development and excellence in service.

Tip Pooling Evolution

Many operators are finding success with tip pooling systems. John Myers, Chief Technology Officer at Big Tree Hospitality, describes their approach: "All of our restaurants are fully pooled houses. We find that creates less competition and a more collaborative environment. We also have a 5% kitchen admin fee, which goes directly to non-tipped employees."

Raheel Gauba, Partner at Ma’am Saab, emphasizes the team-building aspects of tip pooling, saying, "We feel that a tip pool really encourages teamwork and it also encourages everybody to work at their full potential, because if you don't, then you're going to get voted off the island, so to speak."

Tessa Zuluaga, a server in New York City and Toast content writer, speaks from experience: "The best system I worked under had me tip out a percentage of my liquor sales to the bartenders and a percentage of my food sales to the bussers and runners...plus, if I noticed someone was working extra hard I could always tip them out extra which I made a point of doing." Thoughtfully designed traditional tip-out structures can create both baseline fairness and opportunities to reward exceptional teamwork – something that might get lost in standardized pooling systems.

In regions where regulations allow, restaurants are finding creative ways to include back-of-house staff in tip distribution. Sarah Lieberman, Co-Owner and  Managing Member of Dandelion Cafe, shares their Houston-based solution: "They did change the laws so you can tip back of house. We do 15% toward back of house... we pay them a higher wage, and 15% comes off the top, as long as we don't take the tip credit."

For operators like Robbie Soskin, the core issue is simply about fairness. 

"In the end, we are not fans of any added charges. Tips are voluntary and, in the quick-serve model, should be shared by all — but, we live in Minnesota and follow the law which limits tipping sharing to those involved in direct service," he explains. His frustration with restrictive state laws reflects a broader industry desire to create more equitable compensation systems without adding complex fees or surcharges that might alienate customers.

Technology as an Enabler

As tipping systems become more complex, restaurants are increasingly turning to technology solutions to manage these challenges. Modern point-of-sale systems are developing sophisticated tip management features that help with everything from automated pooling calculations to direct payroll integration. 

Technological tools are proving essential for restaurants with complex compensation models like hybrid tip pools. They help ensure accurate tip calculation and distribution while maintaining the detailed records necessary for compliance with varying state regulations.

Looking Ahead

The future of tipping in American restaurants continues to evolve, with several key trends emerging:

• Increased adoption of hybrid compensation models that combine traditional tipping with structured bonus or profit-sharing programs

• Greater emphasis on technology solutions for tip management and compliance

• Continued experimentation with alternative compensation models, particularly in states with more restrictive tipping regulations

• Growing focus on transparency in tipping practices to address consumer fatigue and maintain trust

The slight dip in tipping percentages observed in 2024 may signal the beginning of a shift in consumer behavior in response to "tipflation," but it's too early to determine if this represents a long-term trend or a temporary fluctuation. Restaurants will need to monitor these trends closely and adjust their compensation strategies accordingly.

Robbie Soskin best summarizes the industry's ultimate goal: "All the tip money is all employee money. I just wish we could share it more equitably." As the industry continues to navigate these changes, finding that balance between equity, compliance, and profitability remains the central challenge for restaurant operators across the country.

Methodology

¹To better understand how restaurant guests feel about the current state of the restaurant industry, trends, and expectations, Toast polled 1,571 U.S.-based restaurant guests over the age of 18 from February 14, 2024, to February 21, 2024 who have dined in, ordered takeout, or ordered delivery in the previous three months. Respondents were not made aware that Toast was fielding the study. Panel providers granted incentives to restaurant respondents for participation. Using a standard margin of error calculation at a confidence interval of 95%, the margin of error on average is +/- 2%._

²Data from applicable restaurants on the Toast platform where a tip was added to the order via a card or digital payment from Jan 1, 2018, to Dec. 31, 2024. Cash tips are not included in the analysis.