18% Gratuities Concern

[nomad098]

I do not see what the big issue is with the 18% gratuity added to drinks and dining packages after all it is only a suggested amount and can be altered up or down as born out by the US cruise contract and the UK and EU FAQ's.

 

The exception seems to be EU which has a service charge of 18 % for dining options, which are not included in the cruise fare & all spa and salon services.

 

US https://www.ncl.com/sites/default/files/Guest-Ticket-Contract-11-2015.pdf

© Service Charges: Certain members of Carrier’s crew are compensated by a combination of salary

and incentive programs that are funded in part by the service charge paid by each Guest. The charge ,

which is automatically added to your onboard account and subject to adjustment at your discretion, is

intended to reward service provided in all departments and job categories and is distributed to employees

according to Carrier's evaluation of job performance. A portion of the service charge collected by Carrier

is also used for fleet-wide crew welfare programs.

 

EU http://www.ncl.eu/helpful-information/faqs/#cash-service

Gratuities

 

Unlike most other ships in the cruise industry, there is no required or recommended tipping on our ships for services that are generally rendered to all guests. Guests should not feel obligated to offer a gratuity for good service. However, all of our staff are encouraged to “go the extra mile”, and so they are permitted to accept cash gratuities entirely at the discretion of our guests who wish to acknowledge particular staff members for exceptional or outstanding service. In other words, there is genuinely no need to tip but you should feel free to do so if you have a desire to acknowledge particular individuals.

 

Also, certain staff positions provide service on an individual basis to only some guests (e.g. beverage services) and do not benefit from the overall service charge. We encourage those guests to acknowledge good service from these staff members with appropriate gratuities. For example, for guests purchasing bar drinks, the recommended gratuity of 18 % is automatically added to their final bill. Similarly, all ships have a service charge of 18 % for dining options, which are not included in the cruise fare & all spa and salon services

 

UK http://www.ncl.co.uk/helpful-information/faqs/#service-charge

What about tipping?

 

You will have either pre-paid the service charge on your holiday invoice or it will be charged to your on-board account. In addition, a suggested gratuity of 18% on drink bills, dining options, which are not inlcuded in the cruise fare and on spa and salon bills will be added automatically and charged to your on-board account.

 

After all a gratuity which is fully adjustable and paid to a company in the UK is not liable for tax

 

however a service charge non adjustable paid to a company in the UK is liable for 20% TAX

 

I wonder if this is why they have chosen to include the 18% in the promo in the UK after all you can not adjust a gratuity that you have not even paid.

[RDC1]

Keep in mind that there is a legal difference between gratuity and service charge. Primarily if you can remove the charge or otherwise control the amount paid it is probably a gratuity. If you cannot remove it or reduce it then it would fall into the service charge category.

 

"Tips vs. Service Charges

 

The IRS has specific reporting and taxation rules for tips and gratuities. It defines tips as:

 

Cash received directly from customers;

Extra money from customers through electronic payment, including credit cards, debit cards and gift cards;

The value of any non-cash perquisites, such as tickets or other items of worth; and

Amounts received from other employees paid out through tip pools or tip splitting, or other formal or informal tip-sharing arrangements.

 

Tips differ from service charges in that they are made without pressure or coercion; the customer has the unrestricted right to determine the amount; the payment doesn't result from negotiation or employer policy; and the customer generally has the right to determine who receives the payment.

 

Examples of service charges include:

Automatic gratuities (usually 18 percent or more) attached to large dining parties;

Banquet event fees;

Cruise-trip package fees;

Hotel room service charges; and

Bottle service charges by nightclubs and restaurants.

 

Because some employers keep a portion of service charges, the IRS considers automatic gratuities to be revenue for the business and the dollars distributed to staff as non-tip wages."

 

 

 

While the cruise lines are not US companies they do trade as public companies on US stock exchanges and as a result US accounting standards do have an impact.

Edited February 24, 2016 by RDC1

[LMaxwell]

Keep in mind that there is a legal difference between gratuity and service charge. Primarily if you can remove the charge or otherwise control the amount paid it is probably a gratuity. If you cannot remove it or reduce it then it would fall into the service charge category.

 

"Tips vs. Service Charges

 

The IRS has specific reporting and taxation rules for tips and gratuities. It defines tips as:

 

Cash received directly from customers;

Extra money from customers through electronic payment, including credit cards, debit cards and gift cards;

The value of any non-cash perquisites, such as tickets or other items of worth; and

Amounts received from other employees paid out through tip pools or tip splitting, or other formal or informal tip-sharing arrangements.

 

Tips differ from service charges in that they are made without pressure or coercion; the customer has the unrestricted right to determine the amount; the payment doesn't result from negotiation or employer policy; and the customer generally has the right to determine who receives the payment.

 

Examples of service charges include:

Automatic gratuities (usually 18 percent or more) attached to large dining parties;

Banquet event fees;

Cruise-trip package fees;

Hotel room service charges; and

Bottle service charges by nightclubs and restaurants.

 

Because some employers keep a portion of service charges, the IRS considers automatic gratuities to be revenue for the business and the dollars distributed to staff as non-tip wages."

 

 

 

While the cruise lines are not US companies they do trade as public companies on US stock exchanges and as a result US accounting standards do have an impact.

 

IRS regulations mean bupkis on ships. That is why I prefaced the link I posted as not pertaining directly to NCL; but it is all rather thought provoking.

[RDC1]

IRS regulations mean bupkis on ships. That is why I prefaced the link I posted as not pertaining directly to NCL; but it is all rather thought provoking.

 

You are correct in one area. That is concerning taxation. However, they do apply in that the cruise lines are public companies and are traded on US stock exchanges. That means that they must comply with the accounting standards as directed by the SEC. For financial reporting purposes, the accounting standards are in agreement with the IRS rules, in that gratuities are not considered to be corporate revenue and can be distributed as tips directly to the employees, while service charges are considered to be corporate revenue and the payouts are considered to be non-tip salary and as such are a company expense.

 

This is most likely why they were willing to discuss one, the one that falls outside of corporate revenue, while the hotel director was not willing to discuss the other, because the service charge is corporate revenue and the distribution is considered to be salary. Which is much more complex and privileged information.

[LMaxwell]

You are correct in one area. That is concerning taxation. However, they do apply in that the cruise lines are public companies and are traded on US stock exchanges. That means that they must comply with the accounting standards as directed by the SEC. For financial reporting purposes, the accounting standards are in agreement with the IRS rules, in that gratuities are not considered to be corporate revenue and can be distributed as tips directly to the employees, while service charges are considered to be corporate revenue and the payouts are considered to be non-tip salary and as such are a company expense.

 

This is most likely why they were willing to discuss one, the one that falls outside of corporate revenue, while the hotel director was not willing to discuss the other, because the service charge is corporate revenue and the distribution is considered to be salary. Which is much more complex and privileged information.

 

Thanks for clarifying. I agree with this. Of course the service charge is corporate revenue. They take it in, they account for it, they decide how much of it they will be giving out, to whom, in what amounts, etc.