While the origin of the custom of tipping is a bit murky, popular legend has it that the practice as we know it began in British inns in the 18th century. Servers were given money with a note attached that read, “To Insure Promptness,” hence the acronym “TIP.” Others speculate the practice got its start even earlier. For example, according to John Ayto’s Dictionary of Word Origins, the word tip (meaning “to touch lightly”) was used in 17th century underworld slang to mean “give.” Ayto says this usage evolved in the 17th century to mean “give a gratuity,” so the practice already was established then.
It was a long time, though, before it was embraced here in the United States, say scholars. “My grandmother always told me that tipping was frowned upon when she was growing up during the depression and WWII,” say history buff Jeannie Lugo. “I then saw that attitude in a movie called ‘The Petrified Forest,’ in which Bette Davis, as a diner owner, gives a tip back to a man, saying, ‘tipping is un-American.’
“My hunch on the notion of tipping as un-American is that in England, even into this century, gentry and aristocracy regularly gave money to working-class people not in their own employ for favors done,” adds Beverly Feldt, a 19th-century literature enthusiast. Today, not only does etiquette demand tipping, low wages in many service industries make it necessary.
The question in the salon industry though, at least for some, is whether or not salon professionals should accept tips from their clients. We talked to salon owners on both sides of the fence and present here their perspectives on salon gratuities.
Yes to Tips: “It’s Part of the Business”
For almost 14 years salon professionals at The Brothers Hair Design in Shreveport, La., refused tips. “When we opened in 1979 there was an organization promoting professionalism and saying that no-tip policies were the wave of the future,” says David Horton, who co-owns the salon with his two brothers. “They argued that doctors and lawyers don’t accept them, and salons shouldn’t either. That’s where we wanted to be, so we made it our policy.”
A few years ago, though, Horton spent a few days visiting a high-end salon chain, and in talking to the managers in each salon about his policy, they made the point that some clients’ really enjoy being able to tip in thanks for a great job. “They recommended asking my clients, so I came back and created a client survey in which one of the questions was, ‘Would you like to be able to tip your service provider when you want?’” Two-thirds of the salon clientele responded positively, and Horton realized then that tipping was ingrained in the industry.
“I think it’s just the heritage of our business,” he says. “Approximately 60% of our clients tip now. I hear the argument about professionalism still, but I really don’t think it matters.”
Professionalism Isn’t the Issue
While some argue that accepting tips goes against the professional image the industry wants to project, proponents of tipping adamantly disagree. A person’s degree of professionalism is decided by their skills, their experience, and their demeanor, they say. The point is a good one. Who is more professional? A neatly groomed and well-dressed nail technician who begins each service with a client consultation and who explains the service, the products and how to maintain the look at home, but accepts a tip at the end? Or the jeans-clad nail technician who spends the entire service discussing the intimate details of her and her client’s life but refuses a tip from the client?
The point is, professionalism involves the total package you sell. Professionalism is in the eye of the beholder, and probably few clients would choose their nail technician by her policy on gratuities.
Nor is it fair to compare salon professionals to doctors and lawyers, tipping proponents say.
“We don’t charge what doctors and lawyers do, so why should we want to be like them this way?” Horton asks. “We see clients for 30-45 minutes and hear all about their family history and work situations. I think tips are their way of saying ‘thank you’ for listening.”
The salon owners we spoke to who accept tips say tipping is completely at the client’s discretion and that they, at least, consider it an added bonus rather than an obligatory surcharge. “When I am tipped I know I’ve done a good job and that my work satisfied them,” explains Shelley Chaney, owner of Studio 254 in Lorraine, Ohio. “My prices are low and I offer a lot of amentities like coffee, cookies, candy, and doughnuts. The area I’m in is blue collar and everyone likes nails but can’t afford $65 for a full set. By making my prices as reasonable as possible, everyone can afford them and then those who want to can leave a tip.”
While most salon professionals claim that a client’s tipping habits have no influence on their behavior, Janis Owston, an independent contractor at Genesis salon in Reno, Nev., admits that, while she neither expects nor depends on client tips, a client who tips well tends to receive a little more TLC. “I think we all do more for the people who do more for us when it comes to running a few minutes late or needing a broken nail repaired,” she notes.
“Where I am, tipping makes the world go around,” Owston adds. “When a receptionist gives me a new client, I give her a $5 tip. Each month, all of the service providers in the salon can choose to donate $10 that goes into a kitty that’s split between the front desk personnel and housekeepers. I know they enjoy it and feel special when they get it, just like I enjoy a nice tip. It doesn’t at all take away from my professionalism; I think it’s just courtesy on the part of clients who want you do to things like stay late or come early to fit them in.”
Too, Karena Jaegar, owner of Karena’s Hair & Nail Design in Elgin, Ill., says she think tips are an integral part of her staff’s salary. “It’s part of being in the business,” she says. “I think those who don’t accept tips charge more so it all works out about the same. If we were to raise our prices and refuse tips I think some clients would still tip because they like to. But by accepting tips we leave the choice in their hands.”
Owston agrees: “If I were to raise prices and refuse tips I don’t think clients would see it any differently. That would just mean I’m assuming they’re going to tip and I’m taking away their freedom.”
For employees, it tends to have nothing to do with freedom and everything to do with income. Based on our admittedly informal survey of salon clients, two-thirds of them tip their service provider between 15% and 20%. Few salons could bear the required price increase without a significant loss of clients (keep in mind that in a commission-based salon you’d have to raise prices 40% for the technician to retain a 20% tip). And with an employee’s market life we have in this industry, only those who share your vision will stick around.
Horton agrees, but says he bypassed that problem by recruiting employees straight out of school. “However, once they built a clientele and developed an ego, they’d want the tips and would move on to another salon where they could receive tips,” he says. Horton, who tracks all salon trends and financials very closely, says the only impact his policy change had was to increase his staff retention. Not only didn’t he lose clients, but they continued to make the same service and product purchases as before.
No Tips: “It’s a Personal Thing”
When Paula Gilmore first decided to stop accepting tips in 1989 at her salon (ironically named Tips) which is now located in Redwood Shores, Calif., her reason was purely to distinguish her salon from the discount salons cropping up around her. “When that situation first began, everyone was in a bit of a panic mode and it was a good way to separate ourselves,” she explains.
At the high end of her market, Gilmore still believes her no tipping policy sets her apart as a truly “all-inclusive” nail salon as opposed to a la carte discounters in her area. “Customers were seeing that it says $12 for a fill in the window but that by the time they had their nails shortened and polished and left a tip, it was just a few dollars cheaper than going to an upscale salon,” she notes. Ten years later, she says her area is still inundated by bargain salons, but that she and her partner enjoy a full clientele.
Likewise, Vilma Subel also accepted tips as a hairstylist for many years, but says she was uncomfortable with the practice from the beginning. “Sometimes clients may not have had enough money on them and then they felt bad, and I’ve witnessed people in the industry react to that and I was embarrassed for the industry,” she remembers
She didn’t realize she had a choice, though, until she interviewed with a salon that hesitantly told her about its no-gratuity policy. “I totally understood and respected the owner’s vision,” she says. “I wanted to raise the bar on professionalism in the industry, and that was one of my steps.”
Since opening her own salon, Xiphium in Leawood, Kan., Subel says the client response has been phenomenal. “We have a nice note up at the front desk stating that it’s our pleasure to service you and that we don’t accept gratuities.
“It really helps my staff see the big picture,” she observes. “When a client tries to offer a staff member a tip, I’m so proud when I hear them say that the service is their pleasure and that if the client really wants to do something for them to tell their friends and family about them. Clients think it is so cool.”
It’s All About Professionalism
For these and other salon owners, the awkwardness some clients experience trying to determine when, who, and how to tip negates the financial benefits. Too, they strongly believe their professionalism is at stake.
“Tipping is an extra, added gesture when you feel you’ve gotten exceptional customer service,” explain Amy Obritz, owner of Cinergi Day Spa in Wyommissing, Pa. “My salon culture is to deliver that every time anyway.”
“Professionals don’t depend on income from tips,” agrees Sherry Wirth, owner of Astrid Day Spa in Springfield, Mo. “I think that when people view you like that … they don’t take your education or their responsibility for showing up on time seriously. Spa environments are between salons and doctors, and they’re getting closer to doctors all the time, which creates higher expectations that I think you need to deliver on.”
As a nurse-turned-nail-technician, Laura Mix, owner of Foot Works, A Place for Body and Sole in Elk Grove, Calif., couldn’t agree more. “I used to draw blood from patients, and I never got tipped for doing well at it. Nail technicians charge a fee to do a good job, and they get paid for it.”[PAGEBREAK]
As for the argument that nail technicians make less than doctors, Mix rejects it. “We don’t tip store clerks, and they make even less. There are a lot of people out there working for minimum wage who don’t get tipped. My theory is that I want to do a good job. As nail technicians, we shouldn’t base the quality of our work on whether we will get tipped or not. Salons are becoming considered more and more a healing environment where we make clients look and feel better,” she continues. “I feel that tipping puts a negative energy in there.”
“I feel not accepting tips gives you control over your business and scheduling of appointments, etc.,” adds Obritz. “When you don’t accept tips, it totally dissolves the feeling that clients can buy you and get special treatment with a tip.”
Show Me You Love Me
That’s not to say these salons refuse tokens of appreciation from clients. Like Subel, for example, Obritz makes a point of telling clients that she wants them to tell their family and friends about her salon, and that she would rather see them spend their money on a retail product than on paying her extra money. And most of these salon professionals do accept gifts from clients on holidays or special occasions.
“I have a lot of clients who bring me gifts on my birthday, and I know they went to a special effort to do that. That means a lot more to me than giving me a few extra bucks each time they come,” Mix explains.
Obritz cautions salon owners from adopting a no-tipping policy based on what she or anyone else thinks, however. “I feel very strongly that it’s a personal belief,” she explains. “You have to be 100% sure in your heart before switching, because when you make that big of a cultural shift in your salon things may happen that make you want to go back. But once you make the left turn, you have to stay on that road.”
Is the IRS Eyeing Salon Tips?
Understandably, most salon owners feel unfairly burdened by IRS rules that require them to pay the employer’s portion of FICA taxes on employee tips, which is income the employer never receives. Still, the salon owners we interviewed say they comply with the laws that require them to notify employees of their reporting responsibility and that they collect employees’ reports and pay their share of the taxes.
“Our obligation as employers is to make sure employees now report their tips as income and to provide the documentation,” David Horton says. “If the IRS cracks down on the salon industry, I think you’ll see more people owing up to their tips.” Horton doesn’t believe a crackdown will cause more salons to go booth rental or to refuse tips. “I went booth rental once, and it was ugly. I still think it’s in your best interest to pay commission or salary and just pay the taxes,” Shelley Chaney says.
Hopefully, some relief will come in the form of a $10,000 federal tax credit for salons similar to one recently granted to restaurants. “There needs to be a legislative change that would affect the tax credit for salon owners,” asserts Paul Dykstra, executive director of the ABA (Chicago). “As of yet we don’t have anyone carrying the ball for us.” Even so, he adds,, salon owners must emphasize to employees their tip reporting obligations. In the restaurant industry, which has been closely examined by the IRS, Federal courts have ruled that just because an employee doesn’t report tips doesn’t necessarily release the salon owners from tax responsibility.
“It’s also easier to go after situation where many are involved,” Dykstra notes. “To audit a salon owner with 30 employees is a bigger angle than auditing one salon professional.”
Common Questions About Tips.
Q. What if I don’t report all of my tips to the government or my employer?
A. You could be subject to federal, Medicare, Social Security, state taxes, and any applicable interest on your earnings. Plus, there could be a penalty of 50% on the additional Social Security and Medicare taxes and a negligence penalty of 20% on the additional income tax. The bottom line? It’s not worth it, so be sure to report all of your tips.
Q. I didn’t report my tips to my employer, but I did report them on my federal income tax return. Is that a problem?
A. Yes. You may owe a 50% Social Security and Medicare tax penalty, in addition to a negligence penalty and estimated tax penalty. Plus, when you don’t report your tips to your employer, it places her at risk of penalties for her share to Social Security and Medicare taxes.
Q. I’ve heard of a compliance program. What is it?
A. This is a national program that helps improve tax compliance by tipped employees. If your employer participates in this program and you are a directly tipped employee, you’ll receive a charge/cash tips statements reflecting your charge/cash tips for verification. If you are indirectly tipped, you’ll receive a statement of the tips shared with you.
A 1993 survey of 7,000 Consumer Reports readers found that 43% of respondents said they would prefer to see the practice of tipping ended.
What’s in it for me?
The more money you pay into Social Security, the more you’ll receive in retirement.
You’ll increase your unemployment benefits compensation. (They’re based on your reported salary.)
You’ll increase your employer-sponsored pension, annuity, or 401(k) participation.
You’ll improve your credit standing when you’re trying to get a car or home loan.
When do I have to report tips to my employer and the government?
You need to report tips if you received $20 or more in tips during any month. (But remember if you tip out other employees, you’re only responsible for the tips that you keep.)
You’re required to register a daily log of all your tips. However, the government does make it easy for you. They have free publications and forms that were created just for that purpose.
Remember, even when you report all of your tips to your employer, you are still required to keep your own daily log in case a discrepancy should arise.
What’s the Deal on Tips?
Everything you need to know about reporting your additional income, courtesy of the Cosmetologists Chicago, reprinted with permission from a new brochure, “What’s the Deal on Tips?” For information on obtaining copies, call (312) 321-6809 or (800) 648-2505; fax (312) 245-1080. Or write Cosmetologists Chicago, 401 N. Michigan Ave., Chicago, IL 60611.
It’s a great feeling to go home with a pocket full of tips, but we’ve got some news for you … that money in taxable income. Federal income tax, social security, Medicare and state taxes need to be withheld. Frustrating, huh? Feeling like the government already takes enough? Join the club. Unfortunately, it’s the law and not reporting that income could get you into serious trouble.
You’re probably wondering how the government would even know if you just left off the tips you received. They’ll know! The government will look at your income taxes, see your base salary as a professional and wonder. “Hmm, salon workers usually get tips, why didn’t you?” Plus, since you’re required to report tips to your employer, he or she will end up in hot water, too.
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