Determining best practices for service charges, gratuities and tips continues to be an area of confusion in the event and meeting industry.
- What does the service charge cover?
- When should clients and event participants leave tips?
- Who should be tipped? How much is reasonable to leave for tips?
These are some of the issues with which you and your peers grapple.
To tip or not to tip, that is the question.
The last Plan Your Meetings post about this topic, generated heated exchanges on LinkedIn. Part of the controversy stemmed from the confusion about the difference between service charges and tips. Let’s start with some definitions. (Italicized items are from the APEX Industry Glossary – 2011 Edition).
A mandatory and automatic amount added to food and beverage charges, usually used to defray the cost of labor and service equipment. Generally calculated as a percentage of charges.
A payment to signify good service.
This mandatory charge of 15-22% is added to food and beverage bills.
“A voluntary amount paid for special or excellent service.” Tips can be added to the bill or given in cash directly to the individuals who served the group (e.g. drivers, porters, waiters, bartenders, housekeepers).
Straight Talk About Service Charges
Often, there is an assumption that the term “service charge” refers to a gratuity or tip. If you think tips are covered by service charges, think again.
Hotels and resorts usually take a percent off the top as an administrative charge to offset wages and back-of-house expenses. The cut can range from 5% (if the service fee is 22%) to 33% of the total service fee. The rest of the money goes into a “tip pool” to be shared by many categories of staff not just the waiters, porters and housekeepers who served your group. Some venues don’t distribute the service charge but keep it as an administrative fee.
The bottom line is that, if you assume “it’s covered,” the staff that works hard to provide service for your guests may not be adequately compensated.
Special Considerations – U.S.
In North America, establishments such as restaurants and event venues are permitted to pay a special minimum wage to service staff that is lower than the standard minimum wage for the jurisdiction. There are tax implications that are outside the scope of this discussion. (Tips are taxable as wages and restaurants and hotels do not receive tax credits for them.) The main take-away: The understanding is that staff will make up the difference through tips.
Adding to the confusion, in the U.S., an IRS ruling stipulated that, effective Jan. 1, 2014, mandatory gratuities have been re-classified as service charges. Some establishments now list a suggested gratuity on bills rather than adding a service charge to the total.
Special Considerations – Emerging Nations and Sun Destinations
In some emerging nations and sun destinations, the minimum wage is significantly lower than prevailing rates in North America. Often, there is not a corresponding drop in the cost of living. Employees in service professions count on tips to generate a living income.
Cruise ships and pre-paid packages present special challenges. Often, the perception is that everything is “covered” and there is no need to tip. For the reasons already discussed, this may not be the case. Yet, often, tips are not given due to the belief that they are already included in the total.
If bus drivers, taxi drivers and tour guides are giving gentle reminders that “tipping is allowed,” that is a good indication that, even when a service fee has been collected, gratuities have not been included in the fees for transfers, tours and excursions.
Who Should be Tipped?
Who should be tipped is an area of continuing controversy. Most event planners will agree that waiters and waitresses, bartenders, bus boys, butlers, porters, doormen, taxi drivers, bus drivers and tour guides should be tipped. Tips for other workers are less clear-cut. For example, should the account manager or event planner receive a tip? These are salaried employees but some professionals who have held these roles feel that the salary is not adequate compensation for the long hours they work. What about DJs and caterers? Some have put forth the argument that they should receive tips if they are hired to fill these roles on either a full-time or freelance basis. There is some debate about whether or not DJs and caterers who run their own business should receive tips. After all, they set their own rates. Many individuals who run catering businesses levy a service charge that they consider to be an “administrative charge.” Should the owners be entitled to tips on top of this?
Tips About Tips
When services charges are not distributed as tips, it is important for caterers, hotels, resorts and tour companies to clearly indicate “gratuities not included:” on their invoices. Even if part of it is put into a “tip pool,” it is unlikely that service professionals will receive an adequate portion of a service charge.
The intention should be for the individuals who worked with your group to receive tips based on the following guidelines. If service is good or exceptional, “top up” what service professionals receive to bring tips to these levels:
- Airport Porters: $2-$5 per bag
- Hotel Porters: $5 per room per trip
- Waiters: 15% for good service and more for exceptional service.
- Bartenders: $1-$2 per drink
- Housekeepers: $2-$5 per day or $20-$35 per week
- Butlers: $20-$30 per day
- Taxi Drivers: 15% for good service and more for exceptional service
- Bus Drivers: $5 per person
- Tour Guides: 15% for good service and more for exceptional service
Initiate a frank discussion with clients about tipping. Determine if the client will make up the shortfall or expect the guests to cover it. In the information you send out about the event, advise participants to consider bringing $1 and $5 bills to tip waiters, bartenders, bus boys, porters, doormen, taxi drivers, bus drivers and tour guides “as they go.” Also advise them to place tips for housekeepers and butlers in sealed envelopes and hand the envelopes to them directly on the last day. (Always confirm if the person who has served you will be working on the group’s departure day. If not, then arrange to give them their tips on their last day of your stay.)
The bottom line is never assume, always ask. Always clarify what is included in service charges and how tips and gratuities that are added to the bill are distributed. Based on this information, be sure to build enough into the budget so that service professionals are adequately compensated.