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I am running a small company. We have a fairly liberal expenses policy - for example:

  • €40 maximum per day for meals away from home
  • Taxi fare home if working extremely late
  • Pre-booked hotels when working abroad

When people submit their expenses, should I allow them to include their tip / gratuity?

For example, on a €30 meal with a €5 tip on the receipt, should I reimburse the employee €30 or €35?

I've paid upfront for the hotel, can the employee expense a tip for housekeeping?

On the one hand, the employee has spent the cash, on the other hand the tip is for a service received by an individual - not for a service received by my company.

I'm specifically talking about a UK/EU company, but I would be interested to know what other countries / cultures / companies do.

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  • You will probably have to stick to UK answers. The amount per day allowed for these categories could depend on the tax code. In the US if expenses are more than X for that category receipts are required. If the expense is related to a government contract, then federal contract law can also play a role. High allowances can also impact the taxes of the individual. – mhoran_psprep Jul 3 '14 at 10:11
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    You might want to check the meal allowance with the inland revenue an allowance of 40 euros seems rather high. Note the HMRC is clamping down in a big way in expenses and is requiring documentation for every thing! So I would switch to expensing what the meal costs and scrap the allowance – Pepone Jul 3 '14 at 10:16
  • The allowance is a "maximum" - so they can't get dinner in a fancy restaurant :-) I'll amend the question. – Terence Eden Jul 3 '14 at 10:22
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    "On the one hand, the employee has spent the cash, on the other hand the tip is for a service received by an individual - not for a service received by my company." Yes,but the individual would not have requested the service if the individual had not been in the hotel, and the individual would not have been in the hotel if your firm had not commissioned the trip. The point is whether the housekeeping charges charges that you would accept as reasonable.. – Vietnhi Phuvan Jul 3 '14 at 11:36
  • @mhoran_psprep I believe US federal contracting requires the use of a per diem (at the same rate a govt employee would get) instead of itemizing food/incidental expenses billed to a contract. – Dan Is Fiddling By Firelight Jul 3 '14 at 17:54
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The country by country policy is a nice approach - it's certainly accurate. In the US tipping is largely expected in restaurants, cabs, and hotels. But it obviously varies quite a bit. My rule of thumb would that:

  • A tip is warranted if natives of the country would generally do the same thing.
  • Any tip that is warranted should be reimbursed as it's not as much a factor of personal opinion as country norms.

There are books like "Bow, Kiss or Shake Hands" that do a relatively good job of describing the culture of various nations, and a book like this would work well for figuring out the baseline.

My thought for an actual policy would be to try to keep any document on this down to some level of sanity. Have a set policy for places your people travel to most frequently that does a good job of describing the conditions under which tipping should be done and can be reimbursed. Then require receipts for any tips over a reasonable amount. For example, it's not unusual to throw $1 US into a tip jar not have any sort of receipt for that. But it's not normal to take a taxi or eat a nice dinner, tip $10-$20 US and not have a receipt for that. So companies that I've worked in had a policy where tips under some minimum amount didn't need a receipt. One company was a UK owned company but with a big US employee population, so they accommodated the fact that UK folks traveled to the US quite frequently.

All of that doesn't negate the value of human judgement. Hugely expensive meals with huge tips, crazy transportation choices, and other grey areas are well within your rights to say "we'll pay for X but not for this exorbitant version of that".

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If your people are travelling to countries where it's culturally expected to tip, you should re-reimburse them for this. The employee is travelling on your behalf and really doesn't have much of a choice.

The easiest way to deal with this is to set a clear policy that states the rules for every country and occasion. Example "In Germany we reimburse tips on restaurant meals of up to 5%", in the US we reimburse tips on restaurant meals of up to 20%, hotels 2$/day and taxis and other services for up to 10%".

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    I work for a large company and the policy is similar to what you described. – BlueTrin Jul 3 '14 at 16:06
  • important aside; in New York a taxi tip is more like 20%. – user1084 Jul 3 '14 at 17:23
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This should really depend on the country - not so much of your company, but the country the employee travels to.

  • In the US, you will usually tip the housekeeper at the hotel - in Europe, rarely so.
  • In the US, you will tip 20% to waiters, taxi drivers etc. In Germany, you will usually tip, but to a lesser amount. In Switzerland and the Netherlands, you will often only leave a nominal tip with no hard feelings. In Korea, you will very rarely tip at all.

(These examples reflect my understanding - please feel free to comment on where I committed faux pas.)

Since tips like these are really expected by the people working for you, the posted prices for hotel rooms, taxi fare, restaurant meals will usually be based on the expectation that people will be tipped. So a hotel room in the US will be a bit cheaper than the same room in Europe, all else being equal.

If you are working and living in Switzerland and get sent to the US, you will suddenly be spending much more money on tips, even if you don't eat more at restaurants than at home. It seems unfair to me to leave your employee with this added expense.

My recommendation would therefore be to factor tips into expenses and reimburse your people for them. However, a case could be made for including them in per diems - which should of course also reflect which country people are sent to.

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    I agree with most of this but in the UK (which the q is tagged as) be very wary of per diems the tax authorities have very low limits beyond which a per diems will be seen as a benefit in kind. – Pepone Jul 3 '14 at 10:24
  • i was on business in korea and they carried the tip out of the restaurant and gave it back to me as i was getting in a taxi... – Underdetermined Jul 3 '14 at 11:45
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    I have never tipped a housekeeper in the US, though maybe that's my mistake... – David K Jul 3 '14 at 12:51
  • @DavidK Tipping housekeeping is by no means done by everyone in the US. Some people always do, some people never do, some people only do if the service exceeded expectations. – David Richerby Jul 3 '14 at 17:08
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    @DavidRicherby ... and others only do when they made a mess and are hoping to convince the house keeper to take care of it without reporting it to hotel management (who'd then bill the guest even more). – Dan Is Fiddling By Firelight Jul 3 '14 at 17:56
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At a large company, the answer is almost always either "no" (administrative costs and controls are too high - including, for example, making sure the company doesn't run afoul of bribery legislation) or, less frequently, "use a fixed tip policy" (ie, tips are always assumed to be 10%). Tips are usually not counted separately from other expenses; usually, daily expense reimbursements are fixed roughly based on the continent the employee is travelling to, rolling the cost of tips into them.

You're at a small company, though, with liberal expense policies, and probably little accounting overhead - and i'm guessing you want to stay within that spirit. So I would say, more generally, it's entirely up to you. More specifically, yes, allow employees to expense tips, just as they would any other expense. For example, if you require receipts for all expenses, for example, then only the tips that they can provide receipts for will be reimbursed.

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