What is Gratuity Vs Tip – Differences & Guide 2025

What is the proper use of the words “gratuity” and “tip”? How do we tell the difference? These are frequently asked questions by workers in UAE, USA, Canada and several other countries. “Gratuity” and “tip” are essential interchangeable terms although they are different in definition and have different legal consequences. In this article, we shall attempt to cover and explain gratuity benefits, service charges, and the concept of tip in detail.

Gratuity Vs Tip: Clarifying the Concept

What is Gratuity?

Gratuity is an amount of payment, which an employee receives from his employer in gratitude for the services offered by the employee in the company. Each employee is entitled to a different end-of-contract gratuity, depending on years completed in service, type of contract, last basic salary drawn, and manner of leaving the position (termination or resignation).

Gratuity is a tip give to employee over and above the service charge. This is at the employer’s discretion and specifically, it’s at the employer’s determination and by assessing the quality of the employee’s work as well as the terms of the job contract.

Related: Is Gratuity Part of CTC? Percentage Deduction from Salary

What to Know About Tipping?

Tip Credit or Tip Allowance is the sum of money an employee earns based on the tipping laws or minimum wage standards of a particular organization. Tipping is the extra amount of money that is given to the service providers for their best services.

A tip is a sum of money that you give to a service provider in thanks for work done. Tipping, how much is enough and the way it’s done are often personal choices, and some do offer more or less than others, depending on how much they can afford. Although some might characterise gratuities and tips as ‘illegal’ — or at least ‘informal’ — payments, they are widespread and commonly encountered in many service sectors.

The OED definition of the word tip is ‘to give something to (a person) in recognition of a service or a favour’ or ‘to give a small present of money’. Tipping may also be provided for restaurant staff (waiters and waitresses), baristas or coffee experts, bartenders, tour operators, taxi drivers or any other employee or in-home help.

Is Gratuity a Tip? Understanding the Key Differences

In some cultures words tip, gratuity and service charges used commonly are interpreted as the same. But usually end-of-service gratuity is forcefully paid to the employee along with payables when his job contract is completed. On the other hand, a tip is a gratuitous or voluntary payment of money in addition to the basic rate for services rendered, given by the customer to a worker for services performed. So, how is gratuity amount and tipping the same, and how is it different?

Is Mandatory Service Charge Considered Tip or Gratuity

According to Federal Law, tips and gratuities are not returned in service charge. Sometimes, the Mandatory Service Charge is mixed up with gratuity; yet they are two different things. In voluntary service payments, the customer is obliged to pay some money after receiving the services, or the end of contract between employee and worker or customer and service provider.

Service charges: Extra costs automatically included by caterers and banquet facilities. While tip is discretionary and at the discretion of the patron, service charges are added to the bill. Tips are received in accordance with the Labor Laws and related contract with the individual company. Tips are also not mandatory to cover the staff, they are paid by customer’s satisfaction on the service offered to them.

Gratuity Vs. Tip in Restaurants

It is a very common norm all over the world, but especially in the UAE and USA, where one can leave the tip for staff as per their own choice. In the hospitality industry, gratuities and tips are considered synonyms. In the restaurant, menu bills may include a service charge (about 10%) and a tourism levy (about 6%) that, in restaurants, customers have to pay together with their bill invoice.

But if they receive incredible services, they can also leave a tip on top of the food using this money and the expected service costs. Tipping is capped at about 10-15 percent in the UAE, and it’s about 10-15 percent of the bill, if not hanging out around 20 percent for top-notch service, in the United States.

The employer cannot take the tiniest piece of sum of money that your employee receives as his gratuity or tip. But each company has certain rules and percentages that it’s possible a worker can take, and these outline how much tip credit a worker can take in some period of time.

Tipping Etiquettes in the UAE and USA

Tipping is less common in the UAE than it is in the U.S. and the way it is presented to service providers is different from how things work in North America. A tip is never expected in the UAE or Dubai, you won’t be treated disgracefully for not giving one in here.

Even in other States of America, servers may tend to follow you and keep inquiring you for a tip; that’s a shame for some situations. Additionally, in some types of jobs, e.g., police, government, tipping is illegal (called ‘bribery’) in the USA.

A report coming out of the USA, by the National Restaurant Association, revealed that some restaurants had recently introduced a ‘no-tipping model’ that provided a better customer experience but found that it had negative impacts on employee retention.

Should I Tip if Gratuity is Already Included?

If the tip has already been added, you don’t need to tip, but if you’re satisfied with the service you may tip more. The service charge is another word for the tip This is restaurant provided service so the servers get paid. But if you think the service was great, you can always add an extra tip to make your gratitude known. When you’re presented with your bill, make sure to check that gratuity has been added, and then weigh up cultural practice and your own experience to determine if you ought to tip more.

Bottom Line

Hopefully you understand the idea of gratuity vs tip a little better now. Employers are under legal obligation to pay a gratuity to their employee, at the end of an employee’s contract, while tipping is a voluntary payment, without totaling value of the service rendered, and is not obligatory to give. If you have more question in mind, let us know or check out the full content of the gratuity calculation in UAE.