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Service charges and gratuities

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Service charges and gratuities

Two different things often sit near the bottom of a bill, and they are easy to mix up. A service charge is your venue's standard add-on, set by you and applied as a matter of course. A gratuity is a tip the client chooses to add on top. 1pm keeps them separate on purpose, because they behave differently, most importantly when it comes to tax.

This article covers what each one is, how to set it in 1pm, which to reach for, and a plain note on tax.

Service charges

A service charge is mandatory: the client pays it because it is part of your price, not because they opted in. Think of the standard percentage a venue adds to a function, or a flat event fee.

Set a default once in your Tax and invoicing settings, as a percentage or a fixed amount, and it is filled in on every new document, so you are not retyping it. You can change it, or switch it off, on any individual document while it is still a draft.

By default a service charge is taxed, at your standard rate, because that is how most tax authorities treat a mandatory charge. There is more on that below.

You also decide which lines it applies to. It covers every line to start with, but you can leave a line out by clearing its "in service charge" box. That way you can charge service on food and drink while leaving it off equipment hire or a third-party cost.

Gratuities

A gratuity is voluntary: a tip the client decides to add. In 1pm a gratuity lives on an invoice, sits after tax, and is never taxed, because a genuinely voluntary tip is not treated as part of the sale.

Add one on a draft invoice as a percentage or a fixed amount. It shows as its own line beneath the tax, and it is left out of any deposit, since a tip is not part of what holds the booking.

Because a gratuity is meant to be the client's own choice, there is no option to tax it. If you find yourself wanting to, that is usually a sign the amount is really a service charge.

Which one should I use?

One question settles it: is the amount something the client must pay, or something they choose to add?

  • Must pay, because you set it and it is on the bill as standard: use a service charge.
  • Freely chosen by the client: use a gratuity.

A common case is an "automatic gratuity" for large parties, a set percentage added to every booking over a certain size. Despite the name, that is mandatory, so it belongs in 1pm as a service charge, where it can be taxed correctly.

A plain note on tax

This is the practical reason the two are kept apart. As a general rule, across most of the places 1pm is used:

  • A voluntary tip the client decides and adds themselves is not subject to sales tax or GST.
  • A mandatory service charge you add to the bill is, at the same rate as the rest of the sale. In many places even a suggested amount you print on the bill is treated the same way. The tax-free treatment is only for an amount the client genuinely chooses.

That is exactly how 1pm behaves: service charge taxed, gratuity not. Tax rules do vary by country, and sometimes by state or province, so treat this as the general principle and check anything unusual with your accountant.

One thing worth separating out: tax on the document is not the same as any payroll rules for the staff who receive tips. How tips are pooled and paid to your team can carry its own obligations, and that sits between you and your accountant. 1pm only deals with what appears on the client's bill.

Where they appear

Both show in the document totals in a clear order: subtotal, then any service charge, then tax, then gratuity, then the total. The same layout carries through to the printed and shared versions a client sees, so the bill always adds up the way you set it.

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