Tipping in Canada
Having been the holidays the past two weeks, I was eating out a lot; it got to the point where I never finished disgesting my previous meal before the next one. As I went through the routine of ordering at restaurants and paying, I started to noticed that the difference between the price on the menu vs the price paid is on average 30%. I'm cheap, so this is a lot for me, so I started to wonder why?
I understand that tipping started off from the United States, and Canada just adopted its cultured. However, this is flawed. The United States minimum wage for servers is $2.13/hour if they earn more than $30 of tips per month, compared to the federal minimum wage of 7.25/hr. Compared to canada where the minimum wage for liquor servers is 12.20 and provincial minimum of 14.00/hr (Ontario) (source)[https://www.ontario.ca/document/your-guide-employment-standards-act-0/minimum-wage]
| Country | Min. Wage | Server Min. Wage | Delta |
|---|---|---|---|
| United States | 7.25 | 2.13 | 29% |
| Canada | 14.00 | 12.20 | 86% |
In the United States, unfortunately, servers only get 29% of minimum wage, and thus depends on tip. However, Canadian servers are paid 86% of minimum wage, and that is only if the server serves liquor (i.e. restaurant has a liquor license).
There are arguments that can be said to reason why tipping is still required in Ontario, and I do not disagree as Ontario is becoming a high cost of living province, but this is not what I wanted to address. I was wondering how did it become so ubiquitous to have 15% tip on the credit card kiosk (and this standard option is even being pushed to 18%-20% in downtown Toronto)?
Originally, NFC adoption to the terminals was slow. In Toronto, as the technology was being adopted, it was up to the business owners to update the kiosk with the right firmware to allow NFC payments. It was chaos for cusomters because they never knew when they could pay with NFC or with chip/pin. The technology was always there, but the business owner just couldn't be bothered with doing the upgrade. However, when tipping became part of the flow of payment on the kiosk, it suddenly became the ubiquitous.
The reason I believe this is the case is because it allowed the business owner to recover their cost for using credit cards, and it also allowed them to provide convenience to the customers by giving them an easier paying experience.
If you are paying through a kiosk, the math would work something out like this
(x)(1.13)(1.15) = (1.2995)(x) where x is the food amount, 13% is HST, and assuming 15% tip
In comparision, if you were paying by cash, you would do something like this,
(x)(1.13) + (x)(1.15) = (1.28)(x)
This is assuming you pay tip on the actual food amount and not food+tip.
The difference is 1.95%, which may not seem a lot, but it's enough to significantly reduce the cost of on the business of using a credit card as a form a payment; the general ballpark cost for each credit card transaction is ~2% + 0.25$.
So with the added value that it provided merchants to recover some of their operating costs, and possibly take advantage of customers seeking convenience, merchants were more motivated to update their kiosk to allow NFC.
At least that's my theory. Some of the assumptions are probably wrong, and I may be biased, but it was an interesting thought of how and why technology gets adopted.