The NIC position depends on the arrangements under which payments in respect of tips and service charges are made.

Tips and gratuities

The following flowchart taken from para. 12 of Booklet E24 (referred to at 2.8 of Booklet CWG2) summarises the NIC position as regards tips and gratuities.

Service charges

For NIC purposes, a service charge is any sum that a customer is required by management to pay for services. Where service charges are levied, and the money is paid out to the employees, a Class 1 NIC liability arises, irrespective of who shares out the money. Payments in respect of service charges should be included in gross pay for NIC purposes.

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