Tips versus service charge

Published: 22/09/2021

While the UK isn’t a country with a super-strong tipping culture, like our friends across the pond, for example, there’s still a pretty penny to be made out of customer gratuities for workers and businesses operating in the service sector. 

Paying customers like to reward top class service with extra dosh on top of their bill, so it’s a good idea to clue yourself up on tips and service charges, so you don’t miss out on hard-earned and quite frankly well-deserved money.

With that in mind, in this article, we’ll give you the low down on tips versus service charges, what the difference is between the two, which you should accept, and how you can start to reap the additional rewards today with ease. 

What’s the difference?

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 customers’ bill at the end of service, but the customer can opt not to pay it for numerous reasons, e.g., unhappy with service or simply don’t want to.

A compulsory service charge is just that, not an option, and for this reason, must be explained upfront before service begins. The only excuse not to pay a compulsory service charge is if the service was poor.

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, where no service charge is added to the bill. 

What are they worth?

Service charge

When it comes to adding a service charge it can be tricky to know how much to ask for - go too high and you run the risk of 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 top dollar for your dishes, the top end of this might seem a stretch too far for your diners. 

Top tip: Go for the lower end of the spectrum and satisfied customers might decide to pay a tip on top of your service charge if they’re wowed by the service.

Tips

When it comes to tips there’s no answer as to how much you could bring in as it’ll vary from customer to customer how much they leave. There’s a loose rule that 10% of the bill is customary (this is the minimum expected in the USA, for example) but you can expect tips anywhere higher or lower than this. 

Which should I accept?

Unfortunately, we don’t have an algorithm that tells us which businesses should accept which form of gratuity, but we do have a few top tips which might help you decide whether tips or service charges are better suited to your business. 

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 at the expectation. It’s a dilemma, but one you can overcome by simply asking.

Before making your mind up why not run a poll or generate a short questionnaire and ask your customers what their preference would be as well as what percentage they’d feel is appropriate (if you did opt for a service charge). 

Top tip: Use your social media presence and subscriber list to disseminate this - your followers and subscribers will be existing customers and their opinions matter.

Staff preference

It’s not just your customers’ opinions that matter, but your workforce’s too. Tips can bring in valuable extra income for the likes or waiters and waitresses, but this can sometimes leave the kitchen staff feeling snubbed.

If you do go down the tipping route, it’s important to set out clear guidelines with your employees as to how cash tips are handled, and how they’ll be distributed between all members of staff. 

Service charges added to the bill are arguably easier to divvy out equally. 

Payment systems

Traditionally tips are given in cash, but in today’s world where cash is a dying breed, this can leave customers struggling to pay extra for service if your payment systems aren’t set up to accept tips.

Service charges added to the bill rule out 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. 

To get your hands on this maximum gratuity, our advice is to stick to a lower service charge, somewhere around the 10% mark, to up the chances your customers still feel inclined to add an additional tip on top. 

How to accept tips and service charges

We’ve already alluded to the fact cash is on the way out, particularly out of favour right now thanks to COVID-19, 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 on plastic, but thanks to technology, that’s a thing of the past. 

Card machines

Top-spec card machines come with tipping functionality built-in, meaning your customers can pay the way they want to, 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, smart, sleek countertop machine sits on your point of sale, plugs into your broadband or phone line, and accepts all the latest payment types including contactless and mobile wallets.

Portable

Our portable card machine is powered by Bluetooth and boasts an impressive 50-meter range, allowing you to take card payments from anywhere within your business, making it a favourite with businesses in the service sector wanting to offer their customers a grade-A service. 

Mobile

The mobile machine has all the same functionality as the others but can take payments from anywhere in the country thanks to its inbuilt SIM card - perfect for takeaways and deliveries. 

Order & pay at table

Last but not least is our order & pay at table solution, designed especially for hospitality businesses. 

Using our state of the art beepaid app, diners can scan, order, and pay, all without leaving their seat - and naturally tipping is built-in to the solution too. Here’s how it works:

  • We’ll provide you with a custom QR code which you’ll leave around your premises.
  • Customers scan the code with their smartphone and are taken straight to your menu.
  • They 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.

Pssst: find out more about the perks of order & pay at table here. 

To find out more about any of our payment solutions, or discuss your options in more detail, reach out to one of our dedicated experts today! 

Bryony Pearce

Bryony Pearce

Copywriter

Takepayments Barclaycard