Here is a detailed guide on gratuity & tip - the core difference between the two which is very often misunderstood.
Guide on Gratuity vs Tip – What’s the Difference?
When people get a job, they’ll receive a small payment in the form of a bonus. This can be nice, but it often isn’t enough to cover their monthly expenses. Even if the employee gets a generous bonus, they may not have money left after their expenses. This is where gratuities and tips come into play. A gratuity is an informal tip that an employee receives from a customer or another worker. At the same time, a tip is something you give to a service provider to show your appreciation for their work. The way you tip has as much to do with personal taste as the amount you can afford to give. Most of society considers gratuities and tips ” illegal, ” but that doesn’t mean they aren’t acceptable forms of payment in certain situations.
What Is a Gratuity?
A gratuity is a fee a customer pays an employee for service. The gratuity amount is entirely at the discretion of the employee providing the service. A gratuity is best known for being a tip, but it can also be referred to as a service charge, corkage fee, or similar terms.
What is a Tip?
A tip is another word for what most people call pocket change. It is money that a customer gives to an employee for service. Tips can be given to waiters and waitresses, bartenders, taxi drivers, baristas, and countless other service workers. Tipping tour operators, private boats, tour operators, and airport services are also familiar.
Which Is Better: A Gratuity or Tip?
Before we jump into the differences between the two, let’s first discuss the main difference between tip and gratuity. A gratuity is an amount entirely at the service provider’s discretion. At the same time, a tip is something that is typically expected. Some people may advocate for the abolishment of tips. Certain restaurants and bars have even banned tipping from reducing inequality among workers. These establishments are high-pressure sales operations that rely on customers being unable to say no to additional purchases. If you’re one of these people, we respect your decision to go elsewhere.
What Distinguishes a Gratuity From a Tip?
A Tip Is a Gift – A Gratuity Is a Fee. There are some critical differences between a tip and a gratuity. The first is that a tip is a gift, while a gratuity is a fee. This is significant because it means that you can’t use a tip as an excuse to pay your employees less. It also prevents the idea that customers may be taking advantage of service workers if they give a gratuity instead of a tip. A gratuity is likely to be much less than the amount a customer can pay. While it is a fee, it is typically much less than most customers can pay, so it is not exactly a gift.
Is a Mandatory Service Charge Seen as Equivalent to a Tip or Gratuity?
No, a tip is an optional payment a customer makes to an employee. An obligatory service fee is a sum a customer must pay following a contract or a set necessary service amount posted on an establishment’s menu. A contractually required obligatory service charge can be a 10 or 15 percent fee applied to the price of a banquet.
These fees are seen as sums that the customer owes the business and are not gratuities that are freely provided for the staff. As a result, when a company distributes all or a portion of a service fee to its employees, the decision to do so is at the employer’s discretion, and the service charge—which would be treated as a bonus—is taken into account for determining overtime compensation.
Why You Should Give a Tip or Gratuity?
You Can’t Get the Service Again – A Tip Is the Right Way to Go. There are many reasons why you may want to give a tip or gratuity to your server or other service workers. The most important reason is that you can’t get the same service again. If your waiter was terrible but not awful, you might be hesitant to fill the table next to you and receive the same quality service.
In this situation, a few extra dollars for them to make it up the stairs and reopen their eyes in the wrong place is well worth the effort. There is also the fact that most people will feel guilty if they stiff the waiter or waitress. There are many situations where it is expected to tip. A tip is expected if you receive exceptional service at a restaurant, bar, or airport.
Why You Shouldn’t Give a Tip or Gratuity
The Waiter/Waitress Is Making Way Less Than You – Tip Them Anyway; another reason you should not tip is that the waiter/waitress is making way less than you. While tipping is usually expected in these situations, it is also insulting. If the waiter/waitress is making $3.00/hr., you can rest assured that they are probably making less than that every hour of the day.
The waiter/waitress is probably tired, stressed, and having a bad day. It is rude to tip them, but it is even more rude not to tip them. In this situation, it’s best to tip them on the high side of what you usually tip them at. This will show respect for their hard work, and most importantly, it will not hurt their feelings.
Conclusion
Tipping is an entirely different issue for different service workers, but it is common in specific industries, like restaurants and hotels. You are expected to tip the server if you get exceptional service at one of these establishments. You can also tip the valet or concierge if they help you out with anything. It is best to keep tipping in mind while out with friends, family, or colleagues, as you never know who will need a few extra dollars.
When it comes to gratuity and tips, you might feel confused. Hence, in such a scenario you would need the guidance of an expert such as Vakilsearch who can provide unparalleled support throughout. With the experienced team, it becomes easier to get all your queries resolved.
Frequently Asked Questions
Is it mandatory to register a proprietorship firm without GST, and when is GST registration not required for a proprietorship?
GST registration for a proprietorship is mandatory if turnover exceeds the prescribed threshold. It's not required if turnover remains below the threshold or if the business deals exclusively with exempted goods or services.
Are there specific eligibility criteria or conditions for a proprietorship to operate without GST registration?
Yes, a proprietorship can operate without GST registration if its aggregate turnover remains below the specified threshold, which varies for different states.
Can a proprietorship firm choose to register for GST at a later stage, and how is this transition managed?
Yes, a proprietorship can voluntarily register for GST later. The transition involves applying for registration, obtaining a GSTIN, and complying with related requirements.
What are the advantages of not registering a proprietorship firm under GST?
Not registering under GST can simplify compliance for small businesses, reduce paperwork, and eliminate the need for filing regular GST returns.
What are the disadvantages of not registering a proprietorship firm under GST?
The disadvantages include the inability to collect GST from customers, claim input tax credit, or participate in inter-state transactions, limiting business growth opportunities.
Does the decision to not register under GST impact the ability of the proprietorship to engage in certain business transactions or access benefits?
Yes, it restricts engagement in inter-state transactions and hinders access to input tax credit, potentially limiting competitiveness and benefits under various government schemes.
Are there specific types of businesses or activities that are exempt from GST, allowing the proprietorship to operate without registration?
Yes, certain businesses dealing with exempted goods or services are not required to register under GST, provided their turnover remains below the threshold.
How does the absence of GST registration affect the proprietorship firm's tax liabilities and compliance requirements?
Without GST registration, the proprietorship is not liable to collect or pay GST. Compliance requirements are minimal, sparing the business from regular return filings.
Is there a distinction in the registration process for proprietorship firms that deal exclusively with goods or services?
No, the registration process is similar for businesses dealing with goods or services. It involves applying for GST registration, obtaining a GSTIN, and adhering to compliance requirements.
What resources or government agencies should individuals consult for accurate and updated information on registering a proprietorship firm without GST?
Individuals should consult the official GST portal, seek guidance from tax professionals, or refer to the GST laws and notifications for accurate and updated information on proprietorship registration without GST.
