Tips versus service charge: which one should you accept?
Tips versus service charge: which one should you accept?
22 September 2021 | Published by Jodie Wilkinson
While there’s no expectation to tip in the UK, there’s a lot of evidence to suggest Brits readily reach for their wallet after buying a product or service. According to our Tipping Index survey, 60% said they’d add gratuity if impressed by the service, and 1 in 3 people stated they were likely to tip independent businesses to show their support.
Therefore, learning more about tips and service charges is a good idea so you don’t miss out on hard-earned money.
With that in mind, in this article, we’ll give you the low down on tips versus service charges and the difference between the two. We’ll also help you understand which you should accept and how you can reap the additional rewards for your business with ease.
The difference between tips and service charge
Tips
Tipping is a much more ‘freestyle’ approach to gratuities, whereby customers voluntarily pay an additional sum of money to reflect their gratitude and satisfaction with their experience.
Even though tips are at the customers’ discretion, there is somewhat of a cultural expectation in the UK that some form of a tip will be left — particularly in restaurants — when no service charge is added to the bill.
Service charge
A service charge is a form of gratuity for service that is imposed onto a customer’s bill, either as a discretionary or compulsory extra cost.
A discretionary service charge is added to the customer’s bill at the end of service, but the customer can opt not to pay it for numerous reasons. This could be due to dissatisfaction with the service or simply not wanting to pay an additional fee.
A compulsory service charge is just that: not optional. Businesses issuing compulsory service charges must explain this upfront to the customer before the service begins. The only excuse not to pay a compulsory service charge is if the service was poor.
How much should I charge?
When adding a service charge, it can be tricky to know how much to ask for. Go too high, and you risk turning customers away, offending them, or having multiple requests to remove the charge. Go too low, and you could cost yourself valuable extra income.
Restaurants in the UK that opt for service charges ask for anywhere between 10 and 20% of the bill. Remember, if you are a high-end restaurant that already charges high prices for your dishes, the top end of this might seem a stretch too far for your diners.
Top tip:Think about going for the lower end of the spectrum, and satisfied customers might decide to pay a tip on top of your service charge for exceptional service.
How much money you'll make from tips is difficult to calculate, as it will vary from customer to customer. There's a loose rule that 10% of the bill is customary, but you can expect tips anywhere higher or lower than this.
Which should I accept?
The ultimate decision on what form of gratuity to accept is up to you. However, there are a few things to consider which might help you decide whether tips or service charges are better suited to your business.
1. Customer preference
Some customers prefer a service charge because it eliminates the need for them to work out how much is fair. Others can feel affronted by the expectation. It's a dilemma, but one you can overcome by simply asking.
The Covid-19 pandemic also saw changes in customer habits and the way they wish to pay. Our Tipping Index survey uncovered that post-pandemic, 1 in 7 people don't use cash because of health concerns, so they use their card for everything. 18% of people also no longer carry cash, which they would have left as a tip.
Therefore, a service charge may be the best option, eliminating the need to use cash. Or, you could invest in card machines with a built-in tipping option — like ours at takepayments — so customers can pay safely.
You could run a poll or generate a short questionnaire requesting your customer's opinions on the best way to pay. You could also ask what percentage they'd feel is appropriate if you did opt for a service charge.
Top tip: Think about using your social media presence and subscriber list to disseminate a questionnaire — your followers and subscribers will be existing customers and their preferences matter.
2. Staff preference
It's not just your customers' opinions that matter, but your workforce's too.
With the rise of cashless payments due to COVID-19, staff often rely on their employers' trustworthiness to divvy out tips paid by card instead of keeping it for themselves. In fact, 43% of employees are less confident that they will receive a tip paid by card as opposed to cash, according to YouGov. Therefore, workers may prefer set service charges as it's often easier to divide amongst staff, as opposed to tips which will be different every time.
This may not be an issue for staff soon, though. The Employment (Allocation of Tips) Bill — expected to become law by the 2023-24 tax year — aims to present a fairer distribution of gratuities by making it the law for an employer to ensure tips and service charges are paid to their employees in full.
The new bill will provide employees with a more transparent tipping procedure For some who may have missed out on the past, this will be a welcome and well-deserved boost to their income.
Employers must look at how they are currently processing tips and set out a plan for how they will be divided. Businesses will need to have this in writing so all staff know how it works. They must also document how gratuities have been allocated so the information is readily available if workers request to see it.
If the employer doesn't comply with the requirements after the law comes into effect, they could be sent to an employment tribunal.
3. Payment systems
Traditionally, tips are given in cash, but in today's world, where cash use is declining, customers can only pay extra for service if your payment systems are set up to accept tips.
Brits tip more often than is perhaps believed. Our tipping index survey showed that 36% of us always leave a tip, and 60% will leave a tip if they're impressed with their service.
However, the pandemic accelerated the UK's move towards a cashless society, so businesses relying on cash-only tipping will miss out. In fact, government data shows that 80% of tipping in the UK is made by card payment now rather than cash.
Card payments offer a convenient way for people to tip the amount they actually want to, rather than what they happen to carry in their pocket. That makes it more likely staff will get higher tips, and in the current economic climate, every little helps!
Service charges added to the bill eliminate the need for cash altogether, arguably making them a simpler option. That is unless your payment systems are set up with tipping functionality (spoiler: all ours are!).
Can I accept both?
The short answer is yes, you can. In fact, it’s not uncommon for customers to pay an additional tip on top of a service charge if they feel the service went above and beyond.
Sticking to a lower service charge, around the 10% mark, may increase the chances that your customers still feel inclined to add an additional tip.
How to accept tips and service charges
We’ve already alluded to the fact cash is on the way out, but this doesn’t mean you need to kiss goodbye to hard-earned tips.
When it comes to service charges, you simply need to add the additional cost to the total amount when keying the price into your card machine or electronic point of sale.
Tips are traditionally where things have gotten more complicated when it comes to paying by plastic, but thanks to technology, that’s a thing of the past.
Card machines
Top-spec card machines come with built-in tipping functionality, meaning your customers can pay how they want, not to mention safely, and still leave a tip.
All four of our card machines at takepayments allow you to accept tips, so let’s take a quick look at each.
Countertop
Our small and sleek countertop card machine sits at your point of sale.
This solution provides a quick and convenient way for your customer to pay; it accepts all the latest payment types, including contactless and mobile wallets.
Portable
Our portable card machine is powered by Bluetooth. It boasts an impressive 50-meter range, allowing you to take card payments from anywhere within your business.
This option is a favourite of companies in the service sector who want to offer their customers an A-grade service at their seat. You'll also want to avoid being stuck behind the till if you work in a busy sector, so with a portable card machine, you won't have to be.
Mobile
The mobile machinehas all the same functionality as the others but can take payments from anywhere in the UK thanks to its inbuilt SIM card. This is the perfect option for any travelling business, like mobile hairdressers or plumbers.
Order & pay at table
Last but not least is our order & pay at table solution, designed especially for hospitality businesses.
Our state-of-the-art beepaid app allows diners to scan, order, and pay without leaving their seat. And, of course, tipping is build-in too.
Here’s how it works:
- We’ll provide you with a custom QR code which you can leave around your premises
- Customers scan the code with their smartphone and are taken straight to your menu
- They can browse at their leisure and order from their table when they’re ready
- Once service is complete, they pay (including tips) via the app
Impressive, right? Beepaid makes safe, streamlined, modern-day payments a breeze.
Get in touch with us today
Whether you decide to accept tips, service charges, or even both: our card machines for small businesses are equipped to make payments easier.
To find out more about any of our payment solutions, or discuss your options in more detail, contact our dedicated experts today! Or, check out our blog to learn more about takepayments' technology.
