Taking Issue: should we tip?

Ananish Chaudhuri: the costs add up

When I lived in the US a 15 percent tip was the norm, pretty much regardless of service. A social norm like this quickly becomes binding, and deviating from it is tantamount to a social faux pas.

Tipping in the US if often explained by the fact that service industry workers’ wages are abysmal. This is not the case in New Zealand, where our minimum wage is about $22 per hour – nearly 70 percent of our median wage of about $32 per hour.

Why are some tipped while others not? Taxi drivers are often tipped but bus drivers are not. Servers in fancy restaurants get tipped while those working in fast food restaurants don’t. Should you tip at a fancy place if you get take-out? Do the cooks and cleaners behind the scenes deserve a tip?

Will the tip go to the person who took care of you, or will it be divided equally among all the workers, both good and not so good? Will some of it simply add to the establishment’s bottom line and not make its way to the workers at all?

One other issue is that as we phase out cash, we are increasingly paying with credit cards or contactless payment technology. Currently in New Zealand we routinely pay around 2 percent credit card surcharge. So, if a meal costs you $100, you pay $2; if it costs $500 then you pay $10.

This means that if you spend $300 and charge it to your card, you will pay a $6 credit card surcharge. If you leave a 20 percent tip, your bill is now $360, and your surcharge is $7.20.

That $1.20 more is not a big deal, right? But remember adding the tip means you are now paying your bank an extra $1.20. If a million people do this, that’s $1.2 million. If they do this once a month, this becomes $14.4 million over a year.
Why pay this money to big banks? Don’t tip or even if you do bring cash

Ananish Chaudhuri is a professor of experimental economics in the Business School.

Gabriel Boyd: tipping creates an uncomfortable power dynamic

I’ve lived in the US, where tipping is the norm, and here in New Zealand, where it’s not. In my experience, tipping creates an uncomfortable power dynamic, allows hospitality operators to underpay staff, and makes working in hospitality even more stressful.

When I was in New York City on New Year’s Eve, my Kiwi friend inadvertently neglected to tip a bartender who poured him a tap beer.

It was a 15-second exercise, and the bartender had done nothing unusual. But after the non-tip, we were blacklisted from the bar. The staff wouldn’t take our orders and even refused to give water to anyone we were associated with.
This dynamic is what tipping culture creates: a social contract where giving anything under 20 percent (a figure that has grown over time) is seen as ‘cheap’ and can lead to outbursts from waitstaff.

Now, customers are pressured to pay an extra 20 percent on top of their meal price, which is no longer seen as a gesture of goodwill or an appreciation of good service, but the standard.

Restaurants in the US must pay their staff only a small ‘cash wage’. If hourly tips don’t push earnings above the minimum wage, their employer must make up the difference.

This means that the first five to ten dollars wait staff make is just to hit the minimum wage, and it covers their employer’s end of the bargain. In this sense, tips are how restaurant owners shift their wage bill on to their customers.

Tips also build resentment around restaurants. Where I worked in America, tips would be divided equally amongst front-of-house and kitchen staff, disincentivising servers from working their hardest.

On the other hand, if tips aren’t divided equally, then the best-looking and peppiest servers make the most money – it’s emotionally exhausting.
Either way, tipping builds resentment amongst staff.

Gabriel Boyd is a University of Auckland student who was raised in the US. He is president of the AUSA, but these views are his own.

Jagdeep Singh-Ladhar: tallying the tax implications

Wages are recognised as income and taxed under the PAYE system. Whether tips form ‘income’ in a taxation sense, however, depends on whether they too have the characteristics of income (such as, if the source is reliable and regular). Tips can be classified as additional income, but they are not always reported consistently or correctly, and there are certainly grey areas where the tipping is ad hoc and not reliable.

This inconsistency can lead to both employers and employees being uncertain about their tax obligations. Without clear guidelines on how tips should be taxed, the practice of tipping may inadvertently add more confusion to the taxation process.

While tipping is not currently the norm in New Zealand, if it was to become so, it would create a greater burden for either employers to track and tax tips or employees to self-declare. Either way, dealing with this burden would cost someone time.

When analysing a good tax system we want to think about this administrative cost burden. In the last few years, the government has invested in automating the tax returns for most wage and salary earners. A tipping norm would bring back more administrative cost unless we had clear rules on the threshold at which taxation is triggered.

At the core of our taxation system are also principles like integrity, which works both ways between the government and taxpayers. Tipping can create inequality in income distribution among workers in sectors, particularly where it is more common, like hospitality or tourism.

Workers who receive more tips may underreport or not report their earnings, due to uncertainty around whether it meets the tax definition of ‘income, as tipping is not a consistent practice. This leads to a discrepancy in how taxes are levied and, ultimately, affects the fairness of the tax system. And since tips are often paid in cash, they create a potential administrative burden, further complicating the taxation framework.

As a result, relying on tipping, even if it’s well intentioned, could inadvertently undermine the integrity of the tax system.

Dr Jagdeep Singh-Ladhar is a lecturer in taxation and commercial law at the Business School.

Marisa Bidois: a welcome gesture, not an obligation

Should we tip in New Zealand? Absolutely – but only when it genuinely feels right.

There’s something uniquely heartwarming about tipping. It’s a spontaneous gesture from diners who want to say, ‘You made our experience special.’
While tipping isn’t obligatory in New Zealand, as it is in some other countries, it’s genuinely appreciated by hospitality staff who work tirelessly to create memorable dining moments.

Kiwi hospitality workers don’t depend on tips as their primary income, thanks to our robust minimum wage standards and steady wage growth. Unlike in many other places, tipping in New Zealand is a gesture of sincere gratitude rather than an economic necessity.

Yet tipping remains meaningful. It reinforces the human connection between diners and staff, acknowledging dedication, care and skill.

When diners leave a tip, they’re celebrating hospitality at its best. Tipping should remain part of our culture, but it needs to be done authentically.

Transparency around tipping is crucial. The Restaurant Association encourages our members to clearly communicate to their teams how tips are shared. Fairness and clarity should guide these practices, ensuring staff directly benefit from diners’ generosity.

Our Restaurant Association Rangatahi Advisory Group, made up of future leaders in New Zealand’s hospitality sector, recently highlighted concerns about automatic tipping prompts, which appear on payment terminals. In particular, they noted such prompts may unintentionally pressure diners to tip. Their feedback underscores the need to preserve tipping as a spontaneous and sincere gesture.

Great service should not hinge on the expectation of tips. Our hospitality industry thrives when staff feel valued and respected. Let’s celebrate tipping as a genuine expression of appreciation and never a pressured expectation.

After all, authentic gestures speak louder than obligations.

Marisa Bidois is CEO of the Restaurant Association of New Zealand, Te Tao Roa, and a University of Auckland Arts alumna.

Michael Lee : exploring alternative reward models

The practice of tipping is deeply embedded in American hospitality culture, where service staff rely on gratuities to supplement their wages.

However, I would argue that New Zealand should resist adopting this model, as our existing wage structures and cultural expectations make mandatory tipping both unnecessary and potentially harmful to the service industry.

One of the fundamental differences between New Zealand and the US is the existence of a robust minimum wage. In the US, tipped workers can legally be paid as little as US$2.13 per hour before gratuities, making tips an essential part of their income.

In contrast, New Zealand’s minimum wage ensures hospitality staff receive fair pay regardless of customer generosity. Adopting a tipping culture here could create a perception that service staff require additional financial support when, in reality, they are already compensated at a fair rate.

Beyond economic considerations, the expectation of tipping could also alter the culture of service in New Zealand. While rewarding exceptional service is reasonable, research on motivation suggests that an overemphasis on extrinsic rewards – such as tips – can undermine intrinsic motivation.

Studies in behavioural psychology indicate that when individuals become accustomed to external incentives, their internal drive to perform well for its own sake can diminish. A service culture driven by expectation rather than genuine commitment to hospitality could erode the authenticity and warmth that currently define New Zealand’s approach to customer service.

That said, there are innovative ways to acknowledge excellent service without shifting financial responsibility onto the consumer. One compelling example is the model used by StarSocial, a hospitality company that rewards staff with a $10 bonus when a customer leaves a five-star review. This approach benefits all stakeholders: employees are recognised for outstanding work, customers participate at no extra cost beyond their time and feedback, and businesses reinforce service excellence without distorting wages.

Ultimately, New Zealand should focus on fostering a service culture that values professionalism and fair wages over customer-funded incentives. By exploring alternative reward models, we can celebrate great service without importing the complexities and inequities of the US tipping system.

Michael Lee is a professor of marketing at the Business School.

Simon Schofield: allocation of tips is problematic

In New Zealand, unlike in other jurisdictions, there is no clear employment law regarding tips. This means that it is up to the parties involved – employer and employee – to decide how tips are allocated.

In most circumstances and given the nature of an employment relationship, an employer will ensure that they receive the tips rather than individual employees because it is administratively easier to pool tips. However, this is contrary to the whole idea of tips, which is to reward great individual service.

Where an employer is not clear about how tips are dealt with, this is likely to lead to a breakdown in the employment relationship. This can arise in a number of ways including disputes about how precisely the tips are allocated: individually or collectively? If collectively, should allocation be based on hours of work per week or days of work? If an employee is dismissed, are they entitled to tips they would have earned?

A related issue arises if a tips jar is used as to how an employee can use that money. In Rickards v Night Pearl (2021) Ltd [2023] NZERA 321, for instance, an employee “took or borrowed” money from the staff tip jar on several occasions and was subsequently terminated unlawfully under a 90-day trial period. In this light, the use of a ‘tips jar’ created an opportunity for a dispute that worked against the interests of both parties.

All in all, while well intentioned, the payment of tips is more trouble for employers and employees than they are worth. Increasing the use of technology such as robot waiters and creating an environment to retain hospitality employees (including higher wages) would appear to be a simpler alternative for employers to increase revenue.

Simon Schofield is a professional teaching fellow at Auckland Law School.