Gratuity

For other uses, see Gratuity (disambiguation).

Leaving some small change on a restaurant table is a common way of giving a tip to the serving staff.

A tip (or gratuity) is a unrequired payment to certain service sector workers beyond the advertised price. The amount of a tip is typically computed as a percent of the transaction minus taxes. These payments and their size are a matter of social custom. Tipping varies among cultures and by service industry. Though by definition a tip is never legally required, and its amount is at the discretion of the person being served, in some circumstances failing to give an adequate tip when one is expected would be considered very miserly, a violation of etiquette, or unethical. In some other cultures or situations, giving a tip is not expected and offering one may be considered as condescending or demeaning. In some circumstances (such as tipping government workers), tipping is illegal and considered a bribe. However, in the service industry, tipping is usually expected because it is common etiquette within the United States and it comprises a substantial part of the employee's income.

Etymology

This word originates from the 16th century verb tip, which meant "to give unexpectedly", and was derived from the German word tippen, meaning "to tap." The modern German version would instead be Trinkgeld, literally meaning "Drink Money", or "Money to Drink" Modern German uses the terms Hahn ("tap") and Klopfen ("to tap").

The notion of a stock tip is from the same slang, and the expression hot tip, as in a sure winner in a horse race, also comes from the act of tapping. In the old days, during card games, gamblers would have an accomplice in the room. This accomplice would signal the player regarding the contents of an opponent's hand by "tipping the wink" - that is, by "tapping" out a code with his eyelid. The Oxford English Dictionary states that tip is derived from the English thieves (which may be taken to mean "gambler") slang word tip, meaning "to pass from one to another" (cf. "to give unexpectedly.")

The word "tip" is often inaccurately claimed to be an acronym for terms such as "to insure prompt service", "to insure proper service", "to improve performance", and "to insure promptness". However, this etymology contradicts the Oxford English Dictionary and is probably an example of a backronym.

Some claim the origin for this term is a concept from Judaism, in that it was a chiyuv ("obligation") for a seller to "tip the scales" in favor of the customer. Maimonides explains the verse from Deuteronomy, "A perfect and just weight shalt thou have", that the seller should give the buyer a little more than what he paid for, "Noten lo girumin" (Gives him extra / a tip). For example, if your customer has asked for three pounds of onions, you should measure out the three pounds plus one extra onion, tipping the scale in his favor.

Circumstances of tipping

In countries where tipping is the rule (for example United States), complicated social rules and etiquette have developed over the exact percentage to tip, and what should and should not be included in this calculation. In other cultures where tipping exists it is more flexible and no specific assumptions of the tip amount exist. In the United States, it is acceptable to tip anywhere from 15% to 20%.

Some establishments pool tips and divide them to include employees who lack customer contact. At some restaurants, agreements among the staff require the servers to tip out members of the support staff (kitchen, bartender, and busser) at the end of their shift;; this means that servers pay a certain fixed percentage of their sales (most often a portion less than 15 percent of total sales) to the other staff. Thus when a patron leaves a small tip, it results in the server having to receive less from the tipping pool than other staff.

Tipping is not expected when a fee is explicitly charged for the service. For example, a service charge for all patrons that is automatically added to the tab with no tipping being the rule in Brazil, but even so, this charge is not mandatory, its payment is at the discretion of the customer. Bribery and corruption are sometimes disguised as tipping. In some places, police officers and other civil servants openly solicit tips, gifts and dubious fees using a variety of local euphemisms. For example, a traffic policeman in Mexico might ask a commuter to buy him a "refresco" (soft drink), while a Nigerian officer might expect "a little something for the weekend.".

Tax and labor-law treatment

USA

In some jurisdictions, tipped workers qualify for a lower statutory minimum wage from the employer, and therefore may supplement deficient pay with tips. For example, the United States Internal Revenue Service (IRS) requires restaurant employers to ensure that the total tip income reported to them during any pay period is at least eight percent of their total receipts for that period. If the reported total is below eight percent, employers must allocate as income the difference between the actual tip income reported and eight percent of gross receipts. Therefore the IRS is implicitly assuming the average tip to be eight percent.

Legally, tips should be reported as income for tax purposes by the recipient.

United Kingdom

In the UK all tips received by workers are treated as taxable income but the method for collecting tax will vary. A cash tip handed directly to a worker, or left on a table to be picked up by the server, is the legal property of the waiter and it will be for them to declare the tip to the tax authorities. Tax is usually collected a year in arrears using the PAYE system.

In the UK, tips paid as part of card transactions belong to the business, not to the worker. "[4]." The business is therefore able to keep all, or a proportion, of the tips paid and the customer will rarely be made aware of exactly how much is actually passed to the staff. The same applies to service charges, which are amounts added to the bill when given to the customer. In the UK these vary from 5% to 15%, with 12.5% being standard . Most charges are advertised as discretionary (for tax purposes) meaning that, in theory at least, a dissatisfied customer can decline to pay the charge.

Most businesses pass the bulk of card tips and discretionary service charges to a third party to distribute. This arrangement is known as a "tronc" (from the old French word for poor box) and the person controlling the system is a troncmaster. They are usually a senior member of staff. They will decide upon what share of the tronc each member of staff gets, which is usually based upon a combination of seniority, performance and hours worked.

The tronc system has become controversial in the UK in recent years. In part this is because of a lack of transparency to the customer as to what happens to their tip, alleged abuse by a small number of businesses, and the use by some businesses of tips to pay the National Minimum Wage (which is legal). Between 2001 and 2005 the UK tax authorities launched a highly visible campaign ("Operation Gourmet") designed to clamp down on the tronc system and bring them within the scope of National Insurance Contributions, which would have potentially raised several hundred million pounds per year in extra taxes. The campaign was ultimately unsuccessful and HM Revenue & Customs was forced to back down "[5]." and reimburse businesses who had been forced to pay over money.

In October 2007 the Unite trade union launched a campaign for a change in the law to stop businesses using tips as part of the National Minimum Wage. "[6]."

Sweden

In Sweden previously all tips were seen as taxable salary, although hard to check. Nowadays voluntary tips are free of tax, unless one person gives one employee more than 1000 kr (about USD 150) in a year. There is a general limit in Sweden that if someone pays a private person less than 1000 kr during a year for work done, it is tax free. After a decision in 1996 by the European Court of Justice, all voluntary tips are free of VAT, all over the EU. This is not valid for service charges written on the bill which are treated as normal sales income, and salary if given to the waiter.

Regional differences in tipping customs

Main article: Tipping by region

Tipping customs vary widely by culture and location.

Criticism

A number of economists have suggested that tipping is economically inefficient. Ian Ayres, Fredrick E. Vars & Nasser Zakariya published a paper suggesting that tipping contributed to racial prejudice, since ethnic minorities would often be less able to pay a large tip. Another paper by Yoram Margalioth of Tel Aviv University argued that there was a negative externality associated with tipping, and that the practice facilitated tax evasion. Others have criticised the belief that "Waiters know that they won't get paid if they don't do a good job," with one study from a Cornell University professor concluding that "consumers' assessments of the quality of service correlate weakly to the amount they tip," relying more on superficial factors such as the attractiveness of the server or how large the bill is.