Updated: Aug 20, 2021

Often referred to as a tip, this is a sum paid without obligation for services rendered. It is normally taxable in the hands of the recipient. In some industries, e.g. cab driving, catering or hairdressing, gratuities are an important source of income and basic salaries may be adjusted accordingly. The term is often used for lump-sum payments on the termination of employment, misleadingly in the case of the Armed Forces where such payments are actually contraded for. In the hotel industry, a charge may be added to the bill, supposedly in lieu of gratuities. This is known as a service charge, and is divided amongst the hotel staff much as prize money was divided in the romantic days of British naval supremacy.

Reference: The Penguin Business Dictionary, 3rd edt.

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James Knight
Editor of Education
James is a lead content editor for Invezz. He's an avid trader and golfer, who spends an inordinate amount of time watching Leicester City and the… read more.