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Gratuity

Introduction

Even adults still frequently struggle with gratuities, yet since gratuities are required from so many different service providers, we all need to be able to do it. A gratuity is a cash given in addition to the price of goods or services. Another name for gratuity is a tip. Tipping is not only customary, but it’s also polite. 

Learn about gratuity or tipping, review adding decimals, determine the sum, and rounding off in this article.

What is a Gratuity?

Definition

A customer’s payment to a specific service worker as appreciation for a job well done is known as a gratuity. Gratuity is also known as a tip. The typical percentage range for gratuities or tips offered or paid on top of the service fee is 10% to 25%.

The unique circumstance, level of service, and even the setting can all influence whether and how much to tip. Gratuities are voluntary or extra payments made by customers to service providers at their discretion. In other words, we are not compelled to pay the employee extra money. If the consumer leaves a tip, it will be considered the employee’s property.

How to Calculate Gratuity?

Calculating the gratuity is simply getting the product of the service fee or cost and the tip rate. The following are the steps in calculating the tip amount.

Step 1:  Change the tip rate to a decimal. 

Put the decimal point two positions to the left to do this. Let us say, for example, that the tip rate is 20%, which equals 0.20 when written in decimal form. The decimal point of 20 can be found after zero. If you move the decimal point two spaces to the left, it will be before two. 

Step 2: Multiply the decimal by the bill or cost.

We may also follow the formula: Tip Amount = Cost × Tip Rate.

The tip rate can be converted to a fraction as an alternate method of calculating the gratuity. Since per cent signifies out of one hundred and percentage denotes a portion of a whole, 20% is equivalent to saying $\frac{20}{100}$ in fractional form.

Gratuity Formula

Gratuity or tip is a payment to a specific worker as appreciation for a job well done. The typical range of gratuities or tips paid on top of the service fee is 10% to 25%. This range is also known as the tip rate. Below is the formula to calculate the tip amount.

Tip Amount=Cost×Tip Rate

Let us take the case of three friends, Ana, Maria, and Lucy, who went out to lunch and paid \$70 for their meal. They left a 20% tip for the waiter. What Amount did they give the server?

Let us follow the steps in calculating gratuity. From the given scenario, the cost is \$70, while the tip rate is 20%. 

Step 1: Change the tip rate to a decimal. 

            The 20% tip rate in decimal is 0.20.

Step 2: Multiply the decimal by the bill or cost.

            \$70  0.20

Substituting the values to the formula we have,

Tip Amount = \$70 × 20%

Tip Amount= \$70 × 0.20

Tip Amount= \$14

We can also convert the given rate to a fraction as an alternative solution. We can therefore use $\frac{20}{100}$ to represent the 20% tip rate. We have,

Tip Amount = \$70 × $\frac{20}{100}$

Tip Amount = \$$\frac{1400}{100}$

Tip Amount = \$14

Therefore, \$14 is the tip they pay their server.

More Examples

Example 1

Find the 15% tip on a bill of \$60.

Solution:

Following the steps in calculating gratuity, we have,

Step 1:  Change the tip rate to a decimal. 

             The tip rate of 15% is 0.15 in decimal.

Step 2: Multiply the decimal by the bill or cost.

            Since the bill is \$60 and the tip rate is 15%, we have \$60  0.15 = \$9

Using the formula we have,

Tip Amount = \$60  x 15%

Tip Amount = \$60 × 0.15

Tip Amount = \$9

Alternative solution:

Tip Amount = \$60  x $\frac{15}{100}$

Tip Amount = \$$\frac{900}{100}$

Tip Amount = \$9

Therefore, \$9 is the tip of the bill.

Example 2

Find the 25% tip on a bill of \$150.80.

Solution:

Using the formula for computing the gratuity, we have,

Step 1:  Change the tip rate to a decimal. 

             The tip rate of 25% is 0.25 in decimal.

Step 2: Multiply the decimal by the bill or cost.

            Since the bill is \$150.80 and the tip rate is 25%, we have \$150.80  0.25 = \$37.7

Using the formula we have,

Tip Amount = \$150.80  x 25%

Tip Amount = \$150.80 × 0.25

Tip Amount = \$37.7

Alternative solution:

Tip Amount = \$150.80 × $\frac{25}{100}$

Tip Amount = \$$\frac{3770}{100}$

Tip Amount = \$37.7

Therefore, \$37.7 is the tip of the bill.

Example 3

Solve the following, rounding to the nearest hundredth, using the per cent and the total cost as your values.

( a ) 10% tip of a bill that totals \$52.50

( b ) 18% tip of a bill that totals \$26.12 

( c ) 20% tip of a bill that totals \$15. 75

( d ) 25% tip of a bill that totals \$200.25

( e ) 12% tip of a bill that totals \$34.15

Solution:

( a ) The tip rate is 10%, and the cost is \$52.50. Using the formula, we have,

            Tip Amount = \$52.50 × 10%

            Tip Amount = \$52.50 × 0.10

            Tip Amount = \$5.25

            An alternative solution would be:

            Tip Amount = \$52.50 × $\frac{10}{100}$

            Tip Amount = \$$\frac{525}{100}$ 

            Tip Amount = \$5.25

Therefore, for a bill that has a total of \$52.50 and a 10% tip, the tip amount should be \$5.25.

( b ) The cost is \$26.12 with a tip rate of 18%. Substituting the values to  the formula,

            Tip Amount = \$26.12 × 18%

            Tip Amount = \$26.12 × 0.18

            Tip Amount = \$4.70

Alternative solution:

            Tip Amount = \$26.12 × $\frac{18}{100}$

            Tip Amount = \$$\frac{470.16}{100}$ 

            Tip Amount = \$4.7016

            Tip Amount  \$4.70

The gratuity must be \$4.70 because the answer must be rounded to the nearest hundredth.

( c ) The tip rate of 20%, and the cost is \$15.75. Let us substitute the values to the gratuity formula

            Tip Amount = \$15.75 × 20%

            Tip Amount = \$15.75 × 0.20

            Tip Amount = \$3.15

Alternative solution:

            Tip Amount = \$15.75 × $\frac{20}{100}$

            Tip Amount = \$$\frac{315}{100}$ 

            Tip Amount = \$3.15

Hence, for a bill that has a total of \$15.75 and a 20% tip, the tip amount should be \$3.15.

( d ) The cost is \$200.25 with a tip rate of 25%. Plugging in these values to the gratuity formula, we have,

            Tip Amount = \$200.25 × 25%

            Tip Amount = \$200.25 × 0.25

            Tip Amount = \$50.0625

            Tip Amount  \$50.06

Alternative solution:

            Tip Amount = \$200.25× $\frac{25}{100}$

            Tip Amount = \$$\frac{5006.25}{100}$

            Tip Amount = \$50.0625

            Tip Amount  \$50.06

The tip must be \$50.06 because the result must be rounded to the nearest hundredth.

( e ) The given tip rate is 12%, and the cost is \$34.15. Using the gratuity formula to compute the tip amount we have,

            Tip Amount = \$34.15 × 12%

            Tip Amount = \$34.15 × 0.12

            Tip Amount = \$4.098

            Tip Amount  \$4.10

Alternative solution:

            Tip Amount = \$34.15× $\frac{12}{100}$

            Tip Amount = \$$\frac{409.8}{100}$ 

            Tip Amount = \$4.098

            Tip Amount  \$4.10

The gratuity must be \$4.10 because the result must be rounded to the nearest hundredth.

Example 4

What would your total payment—the bill plus the tip—be if your restaurant bill was \$53 and you wanted to give a 15% tip?

Solution:

Since the tip rate is 15%, we must convert this to decimal and use 0.15 in the gratuity formula. Hence, we have,

Tip Amount = \$53 × 15%

Tip Amount = \$53 × 0.15

Tip Amount = \$7.95

If we want to use the fractional form of 15%, we have the solution,

Tip Amount = \$53 × 15%

Tip Amount = \$53 × $\frac{15}{100}$

Tip Amount = \$$\frac{795}{100}$

Tip Amount = \$7.95

Hence, the tip amount is \$7.95.

The total payment—the bill plus the tip—is calculated by adding the two amounts, \$53 and \$7.95, for a total of \$60.95.

Total Payment = Bill + Tip Amount

Total Payment = \$53 + \$7.95

Total Payment = \$60.95

An alternative solution to this only involves multiplication in the process. Since the tip amount is a part of the bill and we wish to get the total payment, we may multiply 1.15 by \$53. In 1.15, the digit 1 is the whole bill, and the .15 is the tip rate. So, we have,

Total Payment = \$53 × 1.15

Total Payment = \$60.95

Example 5

It just costs \$75, and you got the finest haircut ever. How much money will you need overall, 12% tip included?

Solution:

Let us first calculate the tip amount by multiplying \$75 by 12%. Using the gratuity formula we have,

Tip Amount = \$75 × 12%

Tip Amount = \$75 × 0.12

Tip Amount = \$9

If we want to use the fractional form of 12%, we have the solution,

Tip Amount = \$53 × 12%

Tip Amount = \$53 × $\frac{12}{100}$

Tip Amount = \$$\frac{900}{100}$

Tip Amount = \$9

Hence, the tip amount is \$7.95.

To calculate the overall money, you need that includes the bill and the tip; we have the solution,

Total Payment = Bill + Tip Amount

Total Payment = \$75 + \$9

Total Payment = \$84

Alternative Solution:

Total Payment = \$75 × 1.12

Total Payment = \$84

Therefore, you need a total amount of \$84 to pay for the haircut fee plus the tip.

Example 6

Calculate the 15%, 20%, and 25% tips for a \$250.48 bill. (Round off your answer to the nearest hundredth)

Solution:

Let us calculate the tips using the gratuity formula: Tip Amount = Cost  Tip Rate.

For a 15% tip

Tip Amount = \$250.48 × 15%

Tip Amount = \$250.48 × 0.15

Tip Amount = \$37.572

Tip Amount ≈ \$37.57

For a 20% tip

Tip Amount = \$250.48 × 20%

Tip Amount = \$250.48 × 0.20

Tip Amount = \$50.096

Tip Amount ≈ \$50.10

For a 25% tip

Tip Amount = \$250.48 × 25%

Tip Amount = \$250.48 × 0.25

Tip Amount = \$62.62

What is a Tip?

Definition

A tip is a cash given in addition to the price of goods or services. Another name for it is gratuity. TIP, as an acronym, stands for To Insure Promptness. Whether the service was prompt or not, it is money customers give to workers after the service.

Tipping is not obligatory. If someone leaves a restaurant or other place of service without leaving a tip, they won’t be arrested. If they receive poor service, they typically do not tip.

The amount of tips is influenced by social customs and etiquette, which vary between cultures and situations. For bar and restaurant servers, cab drivers, and other service providers, tipping is only a matter of custom in some countries. According to the perceived value of the service received, a tip may typically be within a given range or represent a certain percentage of the total cost. However, tipping may not be customary or even discouraged in some nations or may even be viewed as disrespectful.

When do people tip or give gratuities?

As a means of recognizing excellent service, tips have been introduced. Tips were thought of as appreciation to service providers. In the modern world, tips are a common form of payment. The customs for tipping vary across international borders.

Here are several situations where people give tips. 

( a ) Food and Beverages

People frequently leave tips for those who work in the restaurant or food industry. These individuals include servers, bartenders, baristas, and others of a similar nature. As part of proper dining etiquette, patrons frequently leave tips for restaurant staff, particularly those who help them receive their food. 

( b ) Hotel Industries

The hotel housekeepers, valets, doorkeepers, and bellhops are among the service personnel involved in the hospitality industry. Customers will occasionally place their gratuities in an envelope marked “hotel housekeeping” for the housekeepers. The gratuities given to the bellhop depend on the customers’ luggage. If the hotel service brought the suitcase to the room, some clients would tip more. 

( c ) Home Deliveries

Delivery drivers are the employees who make home deliveries and are paid tips. While businesses may have policies prohibiting gratuities or gifts, some customers nevertheless choose to pay extra for the service. The installers of the delivered items are another group of personnel who could be involved in the service and receive gratuities in addition to the drivers. The movers, or those who assist customers in moving to a new home, are additional employees in this sector that could receive tips.

(d ) Spa and Salon Services

Hairdressers, barbers, nail techs, massage therapists, and similar professionals operate in this field and may accept tips. Customers frequently give gratuities to show appreciation to their hairstylist and the helper who washed their hair. The gratuities for nail technicians and massage therapists may differ based on the service’s total cost. 

( e ) Individual Services

Workers in the personal services sector who may receive tips include house cleaners, plumbers, painters, handypersons, pet sitters, personal trainers, fitness instructors, and similar professionals. In exchange for each thorough cleaning, clients typically tip house cleaners. Even when customers have previously agreed on a price for services like plumbing, painting, or house repairs before the work begins, some customers still choose to tip on top of the service fee, particularly when the work is done expertly.

Tips to Keep in Mind When Doing Tips

When doing tips, have the following in mind.

( a ) Check to see if gratuity has already been charged to your bill before giving a tip. There are places where the bill already includes gratuity. It is acceptable not to give additional money, but if you would like to give more appreciation for the excellent service, you are welcome to do so.

( b ) Determine your gratuity based on the original prices. 10% to 25% is the usual percentage range for gratuities or tips that are given or received in addition to the service fee.

( c ) Avoid displaying your tip to the public. When you pay the bill, you can place the tip in the holder or hand it to the server.

( d ) If you receive outstanding service, do not hesitate to tip more. Definitely, the server will appreciate it.

( e ) Offer a handshake and a heartfelt “Thank you” if the server refuses to accept tips. Certain personnel are not allowed to take tips because of company policy or because it is not inherently part of their job description. It is sufficient to express gratitude in these circumstances using phrases like “thank you.”

( f  ) Read up on tipping customs if you’re travelling abroad. Tipping regulations may differ depending on the nation or place; thus, it is advisable to review them to be directed appropriately.

Summary

A customer’s payment to a specific service worker as appreciation for a job well done is known as a gratuity. Gratuity is also known as a tip. The typical percentage range for gratuities or tips offered or paid on top of the service fee is 10% to 25%.

TIP, as an acronym, stands for To Insure Promptness. It is not obligatory. If someone leaves a restaurant or other place of service without leaving a tip, they won’t be arrested. If they receive poor service, they typically do not tip.

The amount of tips is influenced by social customs and etiquette, which vary between cultures and situations.

Food and beverage, hospitality-related, spa and salon services, home delivery, and individual home services are the industries where customers tip most frequently.

Frequently Asked Questions on Gratuity ( FAQs )

What is meant by tip?

A tip is a cash given in addition to the price of goods or services. Another name for it is gratuity. TIP, as an acronym, stands for To Insure Promptness.

How do I compute a gratuity?

Gratuity (or tip ) is a customer’s payment to a specific service worker to appreciate a well-done job. Here is the formula to compute gratuity. Tip Amount=Cost × Tip Rate.

Let us have the scenario where you and your family spent \$35 on dinner at a restaurant and want to leave the server a 25% tip. Convert the tip rate to decimal first, giving us 0.25 before calculating the tip amount. Then multiply the \$35 by 0.25. The tip is, therefore, \$8.75.

Using the formula, we have,

Tip Amount = \$35 × 25%

Tip Amount = \$35 × 0.25

Tip Amount = \$8.75

As an alternative solution, we may also convert the tip rate to fraction form; hence we have,

Tip Amount = \$35 × 25%

Tip Amount = \$35 × $\frac{25}{100}$

Tip Amount = \$$\frac{875}{100}$

Tip Amount = \$8.75

What is the usual tip rate?

The amount of tips given to workers and employees varies depending on the preferences of the customers. Customers frequently leave tips for businesses in the food and beverage, hospitality, delivery, spa and salon, and personal services sectors. The typical range of gratuities or tips offered or paid on top of the service cost for these employees is 10% to 25%.

How much is 10% of tip or gratuity?

Let us use the example of a \$12.5 restaurant bill and a 10% tip you would like to leave for the waiter. Therefore, you must be thinking about how to quickly determine the tip you should give the waiter. Move the bill’s decimal point one place to the left to execute this straightforward technique. This means that the tip amount for the waiter is \$1.25.

If you want to give the waiter a 20% tip rate rather than a 10% tip rate, simply multiply by two the \$1.25 calculated earlier, which equals \$2.5.

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