Loathe it or don’t mind it, there’s no escaping it: hospitality businesses around the country are asking for tips and customers are coughing up. An update to the humble eftpos machine may just have changed New Zealand’s service industry forever.
The newer-model machines have vibrant, backlit colour screens, perfect for dimly lit restaurants. And importantly – or annoyingly, depending on your view – they automatically calculate a 5, 10 or 15% tip when diners pay.
“Straight away. Boom,” says Paul Schrader, co-owner of central Wellington restaurant Rita. Although its previous terminals had a tipping function, he says in a dark restaurant after a couple of wines, customers were less likely to notice it.
Perhaps unsurprisingly, everyone the Listener canvassed in the hospitality sector favoured tipping. Hospo floor staff, restaurant owners and managers report the volume of tips coming in has nearly doubled overnight after their eftpos machines were upgraded to the latest model.
But it’s a good bet those in favour of the innovation are in the minority. New Zealand has not traditionally had a “tipping culture”. Restaurant staff are paid at least the minimum wage, so tips are regarded as a bonus rather than a crucial factor in take-home pay as they are in the United States, where hospitality is low paid and tips are critical.
In the past, official channels, such as Tourism New Zealand, have actively discouraged tourists from tipping and travellers are reassured on countless blogs that tips are not expected here.
Hospitality directly employs more than 135,000 people, according to Stats NZ. It has long been seen as a low-wage industry and Schrader says tipping could be a way restaurants can incentivise staff to give the customer a better experience. But it’s a common refrain that restaurants should pay their staff more instead of encouraging tipping.
“But people don’t want to pay for $40 pizzas,” says Renee Coulter, co-owner of Coco’s Cantina on Auckland’s Karangahape Rd. “You don’t want to price yourself out of the market. It’s a balance, isn’t it?”
Coulter believes most owners would love to pay their staff more but it isn’t economically feasible – restaurants have to set prices that will get customers in the door.
The industry has done all it can to keep prices low, says Coulter, and it has reached the limit of what it can charge customers. Evidence of that includes the many businesses that now pass on credit card and Paywave fees to customers. “They can’t build anything more into the price.”
Aggressive moves
Worldline and Eftpos New Zealand are the two key players responsible for processing credit and eftpos card payments. Pete Hansen, Eftpos New Zealand general manager, says the company is “aggressively deploying” to its customers the new touchscreen Android devices with improved tipping functionality. “That will be part of the reason for the increase in tipping,” he says.
The new touchscreens aim to be as unobtrusive as possible. “You want it to be intuitive so that it’s easy for the consumer to apply and to see how much they are tipping. But you also want it to be discreet because I think Kiwis are uncomfortable with people seeing whether they have tipped and the amount.”
His company’s internal data indicates that tipping is becoming “a lot more common” and he has noticed more businesses enabling tipping on their terminals.
Hansen’s data shows a 15% increase in the number of tourism and hospitality businesses using a tipping function since 2019, the last year of trading before the devastating impact of Covid-19 on the sector.
This increase is significant, considering only a small fraction of the approximately 18,000 hospitality businesses in New Zealand are likely to implement tipping features.
In the past, it was the more high-end restaurants such as Wellington’s Rita that enabled tipping.
Restaurant Association of New Zealand chief executive Marisa Bidois regards tipping as “a nice gesture” rather than being critical as a wage add-on.
“It is important to note that in the past year, there has been an 8.8% increase in industry wages, and this follows a number of years of strong wage growth,” she says. “Labour costs now average 38% [of a restaurant’s costs], which is reflective of the upward trend of remuneration rates.”
Owners and operators in hospo – some 2500 belong to the association – have bigger fish to fry, it seems. A recent survey of members showed 35% felt the current customer downturn was their biggest challenge. Other pressing issues were rising operational and ingredient costs and labour shortages.
More widespread
Price point, location, and the target demographic all play a part in who chooses to enable the tipping function. Although a high-end restaurant might use the latest device, you’re unlikely to find one in the local fish and chip shop.
In the past, major cities and tourist areas were more likely to use the tipping function but things are changing. Eftpos’s Hansen says tracking data from its terminals shows the practice is becoming more widespread across the country. “It does suggest New Zealand customers are becoming more comfortable tipping, for whatever reason.”
Mike Lee, associate professor in marketing at the University of Auckland Business School, believes the tipping function’s popularity is “predominantly about convenience and social desirability”.
“You no longer have to work out what 15% of your bill is because it does it for you.”
Lee says customers want to look generous in front of others and for the process to be easy. “It’s much more of a public thing now because it’s right there and that waiter or that maître d’ will know when you’re not tipping them.”
Design could also be a factor. On the new machines, the tip buttons are brightly coloured and easier to spot than the slightly shaded “no tip” button. Functionally, it is much easier to press any of the top three buttons, says Lee.
“If people are a bit older, like me, especially in a restaurant when the light is dim, it might be a bit trickier to find the no tip button, and you’re not gonna be like, ‘Excuse me, where is the ‘no’ button?’ Those design features may push people to tip, where in previous situations they may have been unwilling, unsure or simply indifferent.
“It’s a miserable North American thing, right? When I lived in the States, I knew you did tip because the waiters and waitresses were not getting that much per hour, so tipping was a part of their salary.”
New Zealand’s minimum wage is $22.70 an hour. From April 1, that will increase to $23.15. In the US, the minimum set by the federal government is $7.25 (NZ$11.81), although some states set a higher figure. The minimum wage for employees who receive tips is $2.13 ($3.47) an hour, although their pay must reach at least $7.25 with tips.
Lee says that is not something we want to emulate. “The problem is, once you get some people tipping and some others not tipping, there’s an expectation that people should tip.”
“Tipping is one of the worst things about travel,” travel writer Brook Sabin recently reported on Stuff. “I’ve just returned from an overseas trip, and it is more prolific than ever. It seems only a matter of time before tipping culture sets up in New Zealand. And we need to reject it.”
Sabin did note he does tip for “exceptional service”. (Eftpos machines asking the customer to rate the service they’ve just received before proceeding to the actual bill payment are also emerging here, something else to push customers’ buttons.)
Like Sabin, Rita’s Paul Schrader doesn’t think there should be an expectation for everyone to leave a tip. Conor Mertens, head chef at Wallingford Homestead in Hawke’s Bay, a luxury farm stay with five-star accommodation and a fine-dining restaurant, agrees. “As long as people are getting paid a living wage, tips aren’t necessary.”
Still, Mertens likes the idea of rewarding those who work hard, saying it should be merit-based. “I feel like tipping is a good thing and should be encouraged if you’re in a position to do so. I feel hospitality workers should be encouraged to do a better job because there are benefits to it.” Mertens says the financial incentive can make servers work harder and customers will get a better experience.
Taxing times
A side benefit to the rise in tipping culture is more money in the government’s coffers. In the past, cash tips often went untaxed. However, with electronic payment systems, tips are included in businesses’ financial records, which brings tax obligations.
This history of not paying tax on tips highlights the lack of regulation and enforcement in hospitality. A Ministry of Business, Innovation and Employment spokesperson said the Employment Relations Act does not mention tips and other gratuities. If a worker gets tips, the ministry suggests that an employee have that written into their employment agreement.
So, who owns tips? According to a paper from the University of Wollongong in Australia, under common law the business maintains ownership, which means it’s the business that decides how to distribute them … or not.
Mertens says the ambiguity of ownership and increase in tipping could lead to problems. “It’s an incentive for employers to pay their staff less because they know they’re going to get tipped.”
“Tipping is the tip of the iceberg,” says Coulter from Coco’s Cantina. “I feel like our industry is this important piece of the economic puzzle, but we’re often seen as a side course.”
Becoming the main course may be on the menu – the Luxon government has added the word “hospitality” to the tourism portfolio. Bidois welcomes the name change, saying it finally recognises the industry’s role in the economy and the tourism experience. “This is something that we have advocated for a number of years. The hospitality industry contributes more than $6.4 billion to GDP [2% of total GDP] but government policy has regularly missed the mark when considered against the realities of our sector.”
Bidois says the new portfolio brings a chance for “more cohesive representation for our sector”.
Changes are happening and industry leaders and the new minister, Waimakariri MP Matt Doocey, will need to address concerns around taxation, regulation and ownership – questions that will only become more pressing as the money involved increases.
There are many discussions to be had about tipping, but the question, “Do we want tipping or not?” is somewhat redundant.
Once confined to a jam jar, the tip is now an established economic force.