Gratuity vs Tip: Meaning and Differences

Gratuity vs Tip: Meaning and Differences

Gratuity is an end-of-service benefit for an employee working in the UAE. But there is a small confusion between gratuity and tip, many people believe that gratuity and tip are the same.

What is Gratuity?

Gratuity is a sum of money paid by the employer to the employee at the end of contract. The UAE Labour Law has made gratuity mandatory as an end-of-service benefit for all foreign workers (expats) working in the private sector.

The employer has to pay gratuity to every employee when s/he resigns or the employment contract expires. The gratuity is payable to the employees who have completed minimum one year of continuous service.

What is Tip?

Tip is a sum of money given to a waiter or waitress at a restaurant or a taxi driver. The customers give a tip to a waiter to appreciate his best service including good hygiene, polite behaviour and quick food supply.

As per UAE Government Rules, the waiters, waitresses and other service workers at restaurants can accept a tip from the customers. But the tip is completely voluntary, anyone from the restaurant cannot ask or demand for a tip from a customer.

Why Do People Believe that Gratuity and Tip are Same?

Many people believe that gratuity and tip are the same because of the wide meaning of gratuity word in the Oxford Dictionary. Yes, there are two different meanings of the word “Gratuity” and both the meanings are different from each other.

Oxford Dictionary: Gratuity

  • Meaning 1: Gratuity is a tip given to a waiter, taxi driver, etc.
  • Meaning 2: Gratuity is a sum of money paid to an employee at the end of a period of employment.

As stated above, the Oxford Dictionary has two different meanings of one word called “Gratuity” and millions of people use this word to describe both the tip and the end-of-service benefits.

When Gratuity is a Tip and When It’s Not?

Now, you know that the gratuity word has two meanings. So, it is important to know what a person wants to say when s/he takes the name of gratuity during a conversation.

You need to be aware to find out if a person is talking about a tip or an end-of-service gratuity. To make it easier for you, I have two simple examples of gratuity as a tip and gratuity as an end-of-service benefit.

[A] When a person talks about a restaurant, hotel, taxi/cab or similar place, the gratuity word in his talk indicates about the tip.

For Example: “We went to Rhodes Twenty10 Restaurant for dinner on last Sunday. We all enjoyed the yummy butter chicken with red wine and humble behaviour of the staff. My wife gave a gratuity of AED 20 to a waiter and a waitress who served on our table.”

In above example, it is very clear that the word gratuity is used to indicate tip.

[B] When a person talks about a company/organization and its worker’s resignation/termination like stuff, the gratuity word in his talk indicates about the end-of-service gratuity.

For Example: “My friend, Kamin, worked at a pharma company in Abu Dhabi. His employment contract ended after 3 years and he received gratuity from the employer for all 3 years of service.

In above example, it is quite easy to understand that Mr Kamin has received gratuity as an end-of-service benefit from his employer.

In this way, you can easily capture the meaning of gratuity when a person uses it in a talk/conversation.

End-of-Service Gratuity vs Tip: 5 Differences

People consider gratuity and tip words as same at restaurants, hotels and similar places. But the end-of-service gratuity and tip have 5 major differences that are worth knowing for every individual living and working in the United Arab Emirates.

Sr. No.End-of-Service GratuityTip
1.The end-of-service gratuity is paid by the employer to the employee at the end of contract.The tip is paid by the customer to the employee for an incredible service.
2.As per UAE Labour Law, gratuity is mandatory to pay to every employee who has completed minimum 1 year of service.The law does not force the customer to pay/give a tip to the employee. It is completely voluntary; the customer can pay the tip only if s/he wants to pay.
3.The employer has to calculate gratuity of an employee as per the Gratuity Calculation Formula and pay it. The employer considers basic salary of the employee to compute gratuity.There is no specific formula for calculating the tip. It is a random amount; the customer can choose any amount and give it as the tip/bonus to the employee. Usually, the customer chooses 10% of total bill to give as a tip but it is a personal choice.
4.The employer must pay all dues including end-of-service gratuity within 14 days of termination/end of contract.At the time of bill payment, the customer can choose to pay or not to pay the tip to appreciate an employee’s service quality.
5.All companies/employers in UAE are bound by the law to pay gratuity to the employees. The companies are in full support of the end-of-service gratuity.Some companies are against the tipping culture because it causes increasing greed and discrimination among employees.

Is Gratuity/Tip a Service Charge at Restaurants?

No, the Gratuity/Tip is not a service charge at restaurants in UAE and other countries. Actually, every restaurant has some service charges that are added to the bill of the customer.

If you check your dinner bill carefully, you will find the service charge(s) added to the total of your food cost. The service charge is mandatory to pay, while the gratuity/tip is always optional.

Therefore any restaurant does not consider gratuity/tip as a service charge and never adds gratuity/tip in its bill.

Ideal Tip Percentage at Restaurants

The tip is not a mandatory thing like the end-of-service gratuity or pension of an employee. But many people have an ideal tip percentage of 10% that they prefer to pay as a tip to a waiter/waitress at restaurants.

The percentage of the gratuity/tip varies from customer to customer. The regular tip is often 10% of the bill amount. Some customers are more generous, so they give 12% or 15% of their bill amount as a tip to the waiter. The maximum tip percentage I saw till date is 20% at a luxury restaurant in Dubai, UAE.

Restaurant Etiquettes with Tip vs without Tip in UAE

The restaurants in UAE do not expect any tip from the customers. They focus more on their food quality and customer-friendly service. The restaurant staff (waiters & waitresses) do not ask for a tip by words, gestures or any other way.

If a customer gives a tip voluntarily, the restaurant staff accept it. But the restaurant etiquettes and staff behaviour remain polite even if the customer prefers not to pay any tip.

Can an Employer Retain a Part Gratuity/Tip?

No, an employer cannot retain a part of gratuity/tip that an employer has received from the customer. The employee receives tip for his/her good behaviour and better service, so the customer is impressed by the employee’s qualities.

The employer does not have any share in the employee’s tip. Therefore the employer can neither ask an employee to share the tip nor retain any part of the tip.

Summary:

The gratuity and tip the same at restaurants, hotels and food courts like places. However, other industries consider gratuity as an end-of-service benefit for employees.

The UAE Labour Law describes gratuity as an end-of-service benefit for an employee who resigns or gets terminated. The tip is a bonus or random gift that a customer gives to a waiter or waitress or driver or bartender after receiving a good service.

FAQs

Is gratuity a tip in UAE?

Yes and No. The gratuity is a tip at all restaurants, hotels and food courts in UAE. But the gratuity is not a tip in all other businesses/companies.

Is giving a tip legal in UAE?

Is gratuity/tip a part of service charge at restaurants?

What is a standard tip percentage in UAE?

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