The need for subjective weightings means that small differences in the overall desirability of the different policies should not be given too much credence.
Even though the success of an employment discrimination lawsuit based on a claim of disparate impact from tipping is uncertain, large chains should take the possibility of such lawsuits seriously because the potential costs of losing a class action lawsuit of this nature are very high.
In particular, tipping may have three effects that its alternatives do not. For example, Morwitz, Greenleaf and Johnson found that total recalled costs of a catalogue order were lower when the shipping and handling fees were presented as a separate charge than when they were included in the catalogue prices.
Title VII in the Civil Rights Act of prohibits employment discrimination on the basis of race, color, religion, sex, or national origin Twomey, In discussing this issue, it will be helpful to differentiate nominal prices from real prices.
Very little research has examined customer discrimination in tipping, but a few studies have examined the effects of server sex and race on tipping.
Pay Levels According to the Bureau of Labor Statistics, tipped service workers such as bartenders and waiters earn hourly incomes that are roughly the same as those of non- tipped service workers such as hostesses, fast-food workers, cafeteria counter attendants, and dishwashers Bureau of Labor Statistics, The benefits are difficult to see because they are accompanied by those reduced sales figures, but they are real.
Furthermore, the conditions under which each benefit is especially strong or important are identified. Other Incentives In addition to providing some incentive for the delivery of good service, tipping provides an incentive for several undesirable behaviors.
By lowering nominal prices via tipping and service charges, service firms can reduce distribution costs and increase demand as discussed next. First, it encourages servers to give less attention to members of groups known to be poor tippers.
Until that research is conducted, however, executives and managers can take guidance from general theory and research on decision making, which suggests that people do focus on nominal prices when assessing expensiveness.
Duke PowerU. Finally, tipping may attract less professional workers than do its alternatives, because daily cash payments are more attractive and uncertainty about income is less important to young, part-time, and temporary workers than to mature, full-time, and long-term workers Parise, However, the existing studies do suggest that such discrimination occurs at least sometimes and in some places, so at least some service firms may be subject to adverse impact, employment discrimination lawsuits.
Furthermore, in Griggs v. Certainly, basing tipping policies on such a careful consideration of all the issues raised in this paper makes more sense than unthinking acceptance of local industry norms. The idea that voluntary tipping policies enhance service levels is important and needs to be tested.
Thus, price-insensitive customers do pay a price premium by tipping more than do their price- sensitive counterparts. Furthermore, undeclared tip income effectively reduces the FICA taxes firms pay. Employee Recruitment and Retention As different ways of compensating employees, tipping and it alternatives are likely to have different effects on employee recruitment and retention.
Increases Demand Consumers may focus on nominal rather than real prices as they compare the expense of competing services. While it is not clear how much the weak service-tipping relationship in restaurants generalizes to other service contexts, it does suggest that tipping may not provide as strong an incentive to deliver good service as many believe.
The Tip Rate Determination Agreement TDRA is an arrangement in which the IRS agrees not to audit an employer for undeclared tip income if the employer gets 75 percent of his or her tipped employees to promise in writing to declare tip income equal to some percentage of sales predetermined by the IRS.
More research is needed on this issue, but managers should not assume that tipping or service charges alone will motivate their staff to up-sell. After all the issues are discussed and questions for future research are identified, a final section summarizes the issues and offers suggestions about how executives and managers can integrate them to arrive at a reasonable tipping policy.
It benefits service firms because the ability to earn undeclared and, therefore, untaxed income effectively raises the wages of service workers at the expense of the government rather than that of the service firms. Tipping represents a form of price discrimination, because it allows some customers to pay less than other customers for the same service.
However, tipped employees rarely report all their tip income Internal Revenue Service,so those statistics may be misleading — especially for high-end establishments where tips are very generous. Although no direct tests of this idea have been published, there are numerous studies testing the related idea that consumers tip more for better service.
Moreover, tipping puts unwelcome social pressures on many consumers to part with money they would rather keep Crespi, ; Seagrave, These effects, though plausible, need to be empirically tested. Therefore, firms enjoying strong demand and seeking a relatively exclusive, up-scale clientele may want to replace tipping with service charges or service-inclusive pricing as a way to discourage price-sensitive customers.
For example, 77 percent of U. In contrast, real prices are the total costs to consumers of goods and services including all hidden surcharges. However, they do receive those revenues indirectly in the form of lower labor costs. From this perspective, we do not tip physicians, car mechanics, and some other service workers because consumers cannot tell in the short term if those workers have done a good job or not.
First, the price differentials paid under tipping are voluntary. Discrimination laws vary across countries and this report cannot cover them all, so I will focus on discrimination law in the United States and its implications for tipping.
Incentives for Up-Selling Tips and service charges are both generally calculated as a percentage of the bill, so servers who sell more can expect to earn more in tips and service charges assuming that a fixed percentage of service charges go to the server.
Nominal prices constitute only part of the final bill, which also comprises hidden surcharges such as taxes, service charges or tips. However, those incentives may not be very strong.Dec 10, · Check out our top Free Essays on Recent Changes To The Breakfast And Lunch Programs To Improve Nutrition And Health to help you write your (a consultant on health and wellness) to write an informative paper about the recent changes to the national breakfast and lunch program to improve nutrition and health.
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