What is a gratuity?
A gratuity is an amount added to an event bill that goes directly to the service team — the tip. It may be optional or mandatory, but unlike a service charge, which the venue keeps to cover overhead, a gratuity is intended for the staff who worked the event.
The word people reach for is "tip," and that is exactly right: a gratuity is the client's thank-you to the servers, bartenders and captain, whether they add it voluntarily or the venue builds it into the contract.
Where the money is meant to go.
In catering and banquets, gratuity works differently than a restaurant tip left at the end of a meal. Because event bills are large and settled in advance, the gratuity is usually decided during planning and written into the contract — either as a set percentage the client agrees to, or as an optional amount the client chooses to add. Whatever the form, its defining feature is the destination: a gratuity is for the people who worked the event, not for the house.
This is where gratuity is most often confused with a service charge. A service charge — typically 18–22% — is a mandatory percentage the venue keeps to cover service overhead; it is not automatically a tip. A gratuity is the amount meant to reach staff directly. Some venues combine "service charge + gratuity" into a single line, which is exactly what makes bills hard to read; clearer operators itemise them separately so the client can see what the venue keeps and what goes to the team.
Tax treatment varies by jurisdiction and is a genuine trap. In many places a voluntary gratuity is not taxed, while a mandatory service charge is — but a gratuity that is mandatory can, in some regions, be taxed like a service charge. Because the rules differ and are changing, venues should confirm local law before quoting and label each line precisely. The safest practice for everyone is a bill that names the service charge and the gratuity separately, with the tax treatment of each made explicit.
Gratuity vs service charge.
| Gratuity | Service charge | |
|---|---|---|
| Who receives it | The service team, directly | The venue, used at its discretion |
| Optional? | Often optional; sometimes mandatory | Almost always mandatory |
| Purpose | A tip that rewards the staff | Covers service overhead and staffing cost |
| Taxable? | Usually no (varies by jurisdiction) | Usually yes |
Example: A client's invoice shows a $10,000 food-and-beverage subtotal, a 20% service charge ($2,000) the venue keeps for staffing and overhead, and a separate 5% gratuity ($500) the client added for the team. Listing them on two lines makes clear which amount reaches the staff.
- Service charge — the venue-kept percentage it is so often confused with
- F&B minimum — the subtotal these add-ons are calculated against
- Corkage fee — another line clients meet on the catering invoice
- Full banquet & catering glossary
Gratuity — common questions.
What's the difference between gratuity and a service charge?
Is gratuity taxable?
Gratuity and service charge, never blurred.
Itemise gratuity and service charge on separate lines, each with its own tax handling, on every proposal and invoice. Try LightCater free for 14 days, no credit card to start.