Commissions, Tips And Gratuities

Many businesses offer incentives to their workforce to increase productivity or to provide a better service to customers. There are various methods of inducement which businesses can use and if you decide, as an employer, that some element of performance related pay or incentive will help your business prosper further, you will need to find the most appropriate way for you, as a company, to top up basic workers' earnings. This could be by commission, tips, bonuses, gratuities or some other form of incentive like a holiday or gym membership, for example.

Types of Incentives

Commission is a payment based on the individual worker's or team's performance. It is most common amongst sales staff as they often have lower basic salaries than other workers.

Bonuses are generally linked to the overall performance of the business as a whole but can also be made to reward outstanding personal performance.

Tips and gratuities are most commonly paid to workers in the hotel, pub and catering trade but are also common with those who drive taxis or work in hairdressing salons. They are often small 'gratuitous' payments made by customers to employees for providing them with an excellent level of service. Sometimes they can be paid out of a 'pooling arrangement' where all the tips are collected and distributed evenly at the end of a shift, or they can form part of the service charges paid by customers to the employer - often found on restaurant bills.

Most money payments that are similar to salaried wages are still liable to have Income Tax and National Insurance deducted from them. More information on what does count towards Income Tax and National Insurance liability can be found at HM Revenue & Customs website.

An incentive is a broad term which could also incorporate all of the above. In addition, it can also include gym membership, fun days out, short break holidays etc. - the list is endless.

Why Offer Commission, Bonuses and Other Incentives?

The introduction of 'incentives' into the workplace has many advantages, although they must be transparent, easy to understand and try to be all-inclusive in allowing all staff members the opportunity to reap the benefits. If not properly thought through, a badly run incentive scheme can cause certain members of staff to feel demoralised, unmotivated and resentful of their employer.

However, on a positive note, a well run incentive scheme can encourage higher levels of staff performance, help you retain existing staff, attract new recruits, Improve Staff Morale, loyalty, focuses employees on achieving targets which, in turn boosts productivity and builds teamwork.

Important Issues to Consider

• Whether it's a monetary cash bonus or any other kind of incentive that has an equivalent cash value, e.g. a free weekend all expenses paid trip to Paris, most 'perks' come with tax implications attached.
• Whatever way you choose to reward your employees, they, themselves, must feel that the reward is worthwhile.
• Any incentives should not cost the employer more than what the employee could get them for themselves.
• The incentive should be worth more to the employee than any tax they are liable to pay on them.
• If the incentives form part of the employee's terms and conditions of employment, they cannot be removed or changed without the employee's consent so, to avoid complications, it is always better to minimise financial liability, e.g. not offering uncapped commissions or to offer commissions, bonuses or other incentives as part of a non-obligatory addition to their basic terms and conditions which can be removed or altered at will.
• Although financial rewards can be highly attractive to employees, employers should never forget that they are not the only motivators for staff performance. Job security, job satisfaction, appropriate high levels of quality training and good working conditions are often prized equally, if not more highly, than any kind of incentive scheme.