Daily Service Charge

[Cruise5life]

18 hours ago, gmbhardy said:

I started a thread a few years ago about walking out at theatre performances. More than 14 pages of posts, if I remember correctly.

I walked out on a comedian once.     He called me out as I was leaving.   
And I told him straight up.  

You told the same jokes earlier.  

Most comedians have more material.   And walked out.    
Not sure what his come back was.    
lol 

[mpcaruth]

Came across this interesting comparison of gratuities/service charge today:

 

https://cruisedeckplans.com/DP/deckplans/index.php

[gmbhardy]

6 minutes ago, mpcaruth said:

Came across this interesting comparison of gratuities/service charge today:

 

https://cruisedeckplans.com/DP/deckplans/index.php

That’s very interesting (and revealing). Thanks for posting.

[mianmike]

20 minutes ago, mpcaruth said:

Came across this interesting comparison of gratuities/service charge today:

 

https://cruisedeckplans.com/DP/deckplans/index.php

 

Well at least NCL is number 1 at something . . . 

[Lick What]

On 12/31/2022 at 10:58 AM, gmbhardy said:

Why is the Daily Service Charge discretionary?

 

Because you can remove it if you are cheap.

[Lick What]

On 12/31/2022 at 6:02 PM, ldtr said:

Since the daily gratuity charge is a substantial amount of money it would be noticeable if the cruise lines were to deviate from this accounting practice and start considering tips as revenue and payments to crew as expense.

Payments to employees are by all means and expense and in fact quite often one of the largest expenses a business incurs.

[Kristall]

In Germany we have a clear tipping culture.

After we experienced the tipping culture in the states (sometimes they just demand 20% ?!) we were a bit shocked.

The NCL daily service charge seems to be okay for me. I would prefer to give cash to those I demand worthy after a good service, but I understand that they need the charge because their loan is really low.

 

But anyways, NCL should inform you better. How it works, can you cancel it - or not. Anything.

[mking8288]

Starting booking NCL cruises in 2023 onward by not dealing with NCL ... perhaps not with those big box TA either but to find one of those TA that kickback free DSC and extra OBC, etc. when booking with them directly instead.  This avenue has its shortcomings and limitations, restrictions but for some families - 4 to anything from club balcony cabin or lower for 7 or 8 nights, looking at saving $560 to $640 for the week/+   

 

Then, no worries about DSC at all since the agency is paying for it ...  It will help NCL to further shrink its back office and keep fewer PCC, hmmm.  

[Guest ldtr]

6 hours ago, Lick What said:

Payments to employees are by all means and expense and in fact quite often one of the largest expenses a business incurs.

Certainly  

 

Payments to employees that are salary and benefits are an expense to the business, just as monies billed by companies are products and services are revenue.

 

In this case we are talking about tips. Which under US accounting rules are handled outside of company accounting. Tips are neither revenue to the company when received, nor are the tips when paid to the employees considered to be an expense to the company. They are basically off books. They can be treated that way as long as the rules are met. 2 of those rules are 1. the tips must be optional (can be modified or removed) 2. all tips received must be paid to employees.

 

 

[Barb Nahoumi]

18 hours ago, mpcaruth said:

Came across this interesting comparison of gratuities/service charge today:

 

https://cruisedeckplans.com/DP/deckplans/index.php

Wow!!!!! Cunard is less than NCL.

 

[Joebucks]

On 12/31/2022 at 6:02 PM, ldtr said:

The main US focused cruise holding companies all list their stock on US stock exchanges and are therefore subject to US accounting rules.

 

Gratuities, such as the daily ones (not to be confused with the services charges that are fixed and not discretionary) under those accounting rules are not consider to be income to the cruise lines and payment of those funds to crew are not considered to be expenses.  This has benefits for both the crew and the cruise line.

 

This is true provided some rules are met.  Two of the major ones are 1. They must be discretionary  (able to be changed or removed by the customer) and 2. All funds received must be distributed to the crew.

 

Since the daily gratuity charge is a substantial amount of money it would be noticeable if the cruise lines were to deviate from this accounting practice and start considering tips as revenue and payments to crew as expense.

 

"Wah, not my problem. The company should pay the employees a "living wage" out of some secret money pool."

[New2cruise2022]

24 minutes ago, Joebucks said:

 

"Wah, not my problem. The company should pay the employees a "living wage" out of some secret money pool."

I think the point is that NCL made this accounting bed that they will have to sleep in it.  If NCL is upset that consumers don’t like the charge and reduce or remove the DSC, then the brilliant business minds at NCL should find a better model to capture revenue to pay obligations. NCL should be proud of the brand loyalty they manage to create. Very few brands manage to create a protectionist culture at the accounting level. 

Edited January 2, 2023 by New2cruise2022

[Guest ldtr]

4 hours ago, Joebucks said:

 

"Wah, not my problem. The company should pay the employees a "living wage" out of some secret money pool."

People may not like the tipping system that many cruise lines use, but they need to be careful what they wish for since they might like the alternative even less.  Which would be the daily fares increased by the same amount and the system eliminated.  Or even worse replaced with a non-discretionary service charge.

 

Keep in mind that the current system does have some benefits to each party compared to if the money was simply made part of the fare.

 

1. For the passengers.  Having tips separate means  that it is not considered to be part of the cost of the trip when it comes to travel insurance. That means that the cost of travel insurance is less than if gratuities were simply eliminated and made part of the fare.  It also means that passengers do not have to pay that amount upfront several months before the cruise.

 

2. For the crew- tips are treated differently for tax purposes in many countries.  As a result the tip system means that they get to keep more of the money.

 

3. For the company it means that their revenue and expenses are reduced by the same amount resulting in a higher margin calculation. In addition due to tax treatment it also impacts some of their payroll taxes.

Edited January 2, 2023 by ldtr

[RocketMan275]

22 minutes ago, ldtr said:

People may not like the tipping system that many cruise lines use, but they need to be careful what they wish for since they might like the alternative even less.  Which would be the daily fares increased by the same amount and the system eliminated.  Or even worse replaced with a non-discretionary service charge.

 

Keep in mind that the current system does have some benefits to each party compared to if the money was simply made part of the fare.

 

Three points.

First, it's not at all clear that the daily fares would only increase by the same amount. As you've pointed out, there are tax advantages to the present system implying that the fares might be increased by a significantly larger amount.

Second, while some people may not like the present system, the important question is what would the crew prefer?  Surveys generally indicate that those working for tips prefer that system over an increased basic wage.

Third,  I'm convinced that those campaigning for eliminating the DSC are of the belief that if the DSC is eliminated, that will reduce their costs of cruising by an amount similar to the DSC.  They want the cruise fare to stay the same while the DSC is eliminated.

[Lick What]

17 hours ago, ldtr said:

Certainly  

 

Payments to employees that are salary and benefits are an expense to the business, just as monies billed by companies are products and services are revenue.

 

In this case we are talking about tips. Which under US accounting rules are handled outside of company accounting. Tips are neither revenue to the company when received, nor are the tips when paid to the employees considered to be an expense to the company. They are basically off books. They can be treated that way as long as the rules are met. 2 of those rules are 1. the tips must be optional (can be modified or removed) 2. all tips received must be paid to employees.

 

 

We are talking about a daily service charge.  Some prefer to CALL them tips/gratuities.  You do not need to explain accounting to me.  I am both a CPA and a CIA.

[Guest ldtr]

3 hours ago, Lick What said:

We are talking about a daily service charge.  Some prefer to CALL them tips/gratuities.  You do not need to explain accounting to me.  I am both a CPA and a CIA.

 

It would be a service charge  and considered to be wages if it did not comply with  Rev Rul. 29-252 which was affirmed  in IRS bulletin  2012-26  in Rev Rul. 2012-18.  However if it does then it would be considered to be  tips and not considered to be wages.

 

The key difference is that the daily amount is not mandatory, along with having to meet some other rules.

 

Also according to FASB Codification 605-4545, if they were not considered to be a tip and were in fact considered to be a service charge they would have to be included as part of the companies gross revenue.  Yet 10Q and 10K filing do not reflect that for any of the major cruise holding companies and the size of the amount collected would certainly be material to those filings.

[Guest ldtr]

5 hours ago, RocketMan275 said:

Three points.

First, it's not at all clear that the daily fares would only increase by the same amount. As you've pointed out, there are tax advantages to the present system implying that the fares might be increased by a significantly larger amount.

Second, while some people may not like the present system, the important question is what would the crew prefer?  Surveys generally indicate that those working for tips prefer that system over an increased basic wage.

Third,  I'm convinced that those campaigning for eliminating the DSC are of the belief that if the DSC is eliminated, that will reduce their costs of cruising by an amount similar to the DSC.  They want the cruise fare to stay the same while the DSC is eliminated.

Which is not going to happen.  

 

There is  the potential to be some slight reduction if they were rolled in for competitive reasons, since the entire amount would show up as fare, kind of like in the way that hotels might absorb some of their resort fees if they had to include them in their fares and not as an add on fee. However the margins with cruise lines, even in the best of times, (and they are certainly not in those times today) are relatively small so they could not absorb much of that.

[Guest ldtr]

22 minutes ago, ldtr said:

 

It would be a service charge  and considered to be wages if it did not comply with  Rev Rul. 29-252 which was affirmed  in IRS bulletin  2012-26  in Rev Rul. 2012-18.  However if it does then it would be considered to be  tips and not considered to be wages.

 

The key difference is that the daily amount is not mandatory, along with having to meet some other rules.

 

Also according to FASB Codification 605-4545, if they were not considered to be a tip and were in fact considered to be a service charge they would have to be included as part of the companies gross revenue.  Yet 10Q and 10K filing do not reflect that for any of the major cruise holding companies and the size of the amount collected would certainly be material to those filings.

Note:  As a comparison the service charge that is collected as part of drink costs and other services that are  fixed amounts and cannot be modified and removed are considered to be service charges and the revenue is accounted for as part on onboard sales for the drinks or services with which they are affiliated.

[New2cruise2022]

@ldtr Thank you for the thoroughly cited explanation. 

[tony s]

Here is the best part. Just came off the Dawn. Our steward told us that come January they only are to clean rooms in morning no more evening service as NCL is increasing the amount of rooms they are required to clean, really/ And they want more DSC?

[macewank]

4 minutes ago, tony s said:

Here is the best part. Just came off the Dawn. Our steward told us that come January they only are to clean rooms in morning no more evening service as NCL is increasing the amount of rooms they are required to clean, really/ And they want more DSC?

While I certainly wouldn't argue with "the source" on this one, it does leave me with some questions..

As part of this whole change, they're also eliminating the Junior (assistant? what's the term?) Steward position and likely promoting all of them to full room stewards as well...  so i'm not sure why they'd be taking on more rooms when there's going to be twice as many of them (or exactly as many depending on how you look at it) and half the work?

[J0Y0US]

On 1/2/2023 at 11:44 AM, Joebucks said:

 

"Wah, not my problem. The company should pay the employees a "living wage" out of some secret money pool."

 

No they should run their business like one that makes money and with the increased revenue pay for their employees. I always laugh when people like you try to throw around some accusation that people who are pro better salary are somehow saying its free money that is coming out of thin air.

 

21 hours ago, ldtr said:

Which would be the daily fares increased by the same amount and the system eliminated.  Or even worse replaced with a non-discretionary service charge.

 

I am good with both and hopefully laws will be put in place requiring these to be placed in the advertised price instead of being hidden.

 

Two of my biggest issues with tipping culture is 1) stress on employee if situations change and income goes down and 2) hidden aspect of hiding these costs away from individuals as a marketing tactic (same reason there is distaste for US cable companies)

 

21 hours ago, ldtr said:

1. For the passengers.  Having tips separate means  that it is not considered to be part of the cost of the trip when it comes to travel insurance. That means that the cost of travel insurance is less than if gratuities were simply eliminated and made part of the fare.  It also means that passengers do not have to pay that amount upfront several months before the cruise.

 

It only needs to be part of travel insurance if not refundable. NCL could change the cruise fare to include X% refundable until boarding which accounts for this portion. Separately this would also mean employee would not be hit with an empty cabin not paying any gratuity that sailing so they are hit because the cruise line couldn't fill the room.

 

21 hours ago, ldtr said:

2. For the crew- tips are treated differently for tax purposes in many countries.  As a result the tip system means that they get to keep more of the money.

 

Flip side you may find with no "tips" included in the payment to NCL that more people add additional cash tips and they pocket even more money as crew.

 

Also to add on to point 1 you now are having crew paid as if all rooms are filled potentially instead of being paid on each trip having a varied amount of rooms with people in them and possibly different amounts of people in those rooms.

 

21 hours ago, ldtr said:

3. For the company it means that their revenue and expenses are reduced by the same amount resulting in a higher margin calculation. In addition due to tax treatment it also impacts some of their payroll taxes.

 

Which to my understanding is done in countries that have generous tax consideration so they might need to work with those countries. In the end that is a company issue and not a me or employee issue. They need to find a model and charge accordingly.

 

I will state it fairly plainly I am fine paying more if the employee is getting a fair wage without a requirement of tips to live their life. If then however they provide great service and can be tipped even better.

 

Its why I really like Sandals when we went. Charge more but remove tipping as a custom.

 

I see little difference from a Cruise vs Disney World (where I don't tip the character) vs grocery store (where I don't tip shelf stockers) vs a variety of places in my life where companies pay wages instead of passing the requirement on to their staff.

[fshagan]

On 1/2/2023 at 8:10 PM, ldtr said:

 

It would be a service charge  and considered to be wages if it did not comply with  Rev Rul. 29-252 which was affirmed  in IRS bulletin  2012-26  in Rev Rul. 2012-18.  However if it does then it would be considered to be  tips and not considered to be wages.

 

The key difference is that the daily amount is not mandatory, along with having to meet some other rules.

 

Also according to FASB Codification 605-4545, if they were not considered to be a tip and were in fact considered to be a service charge they would have to be included as part of the companies gross revenue.  Yet 10Q and 10K filing do not reflect that for any of the major cruise holding companies and the size of the amount collected would certainly be material to those filings.

 

Cruise lines (generally) do not pay any corporate income tax on shipboard revenue, so, while the accounting practices still have to conform to SEC rules (for US-based cruise lines), there is little incentive for the cruise lines to categorize items differently for "tax purposes".

 

Easy Google search for not paying corporate income tax brings this up as the first result: https://www.nbcnews.com/business/business-news/most-cruise-lines-don-t-pay-taxes-u-s-just-n1172496

[FLAHAM]

Silversea and other high end lines have a “no tiping” policy.

[PTC DAWG]

1 hour ago, FLAHAM said:

Silversea and other high end lines have a “no tiping” policy.

They gladly take tips…