A guest who sees “service 12%” on a bill and a tip line on a card terminal has been asked twice, for two different things. Staff who then receive one number at the end of the week have been told those two things were the same. Often they were not.

The confusion is expensive. It is also unnecessary. The two amounts have different legal shapes, and the till already knows which is which.

Two amounts, two questions

A tip is money the guest did not have to pay. In Germany it is tax-free for the employee only when it is voluntary, comes from the guest, and nobody has a legal claim to a specific share[3].

A service charge is an amount added to the bill. It may be described as discretionary, automatic or mandatory. HMRC treats tips, gratuities and service charges as related but not identical, and the tax and National Insurance answer depends on who controls the money and how it is paid[2].

A bill folder with a card payment on one side and a pizza slice handed over as a tip on the other
Card charge on the left, tip on the right. The till already keeps them apart; the payout should too.

What the law actually groups together

The UK’s Employment (Allocation of Tips) Act 2023 talks about “qualifying tips”. That net is wider than cash in a jar: it includes gratuities and service charges that are paid to workers[1]. A discretionary service charge that is passed on can sit in the same regime as a tip. A mandatory surcharge that the business keeps is just a price.

Germany draws the line earlier. A Servicepauschale built into the price is generally the employer’s. Trinkgeld is the guest’s gift. Putting a surcharge into a staff pool can change how it is taxed, which is a reason to keep the streams labelled.

How the two amounts usually behave
Tip Service charge
Guest must pay it No Yes
Meant for the team Yes No
Can be pooled Yes Yes
Often delayed No Yes

“Service charge” here means a line on the bill. Whether staff receive it is a policy choice, except where qualifying-tips rules apply.

The third row is the one teams get wrong. A service charge can be pooled. It is not in the pool just because it appears on the bill.

Write the pots down

Three sentences prevent most of the mess:

  • What counts as a tip, and what counts as a service charge.
  • Which of those pots are shared with the team, and by which method.
  • When each pot is paid, because card and surcharge money do not arrive with cash.

Frequently asked questions

Is a service charge the same as a tip?

No. A tip is a voluntary payment the guest chooses to leave for the team. A service charge is an amount added to the bill, sometimes optional, sometimes not. It becomes a tip only when the business actually passes it on, under a rule the team can see.

Do staff receive the service charge?

Only if the policy says so and the money is paid out that way. A line on the bill is not a payout. In the UK, service charges that are paid to workers can count as qualifying tips; a charge that stays with the business does not. Elsewhere the answer is even more a matter of what you wrote down.

Should a service charge go into the tip pool?

If it is being shared with the team, yes — as its own line, not mixed invisibly with cash tips. The two streams often arrive on different days and with different tax treatment. Pooling them without saying so is how a reconciliation fails.

Can a restaurant keep a service charge?

A mandatory charge that is part of the price is usually the business's. What it cannot do, in the UK, is keep qualifying tips. The honest move everywhere is to say on the menu which charges are kept and which are shared, then follow that sentence at payout.