The Tribune

By J C GOMEZ

I have worked as a director of administration and financial controller in the hotel industry so I have an idea as to how the system of gratuities can be improved in the Bahamas.

What is the definition of gratuity? Formally it equates to tip. If we use the British definition, it equates to the sum of monies paid to an employee at the end of the period of employment - what we call severance pay. According to its Latin origin, gratuity means thankful. That later evolved in the 15th century to gift or favour for services rendered.

Today in the Bahamas, gratuity is a gift for services rendered paid by the guest and paid with salary to the employees who are included in the guest’s bill. It should not be confused with a tip. That is the guest’s cash reward for appreciation of service rendered given to the employee directly. Some tend to argue that is double tipping; however they are not the same as gratuity is paid for the amount of service rendered and tip is for quality of the service rendered.

Originally the trade unions wanted to separate salary from gratuity because they did not want to include gratuity in the definition of minimum wage; in other words, if gratuity was above $150 at the time there was no need for salary to comply with the minimum wage. Therefore the employee will get a minimum salary plus gratuity if gratuity is not considered as part of the wage.

It is true that its origin came from tips benefiting bar and restaurant employees. Today most business have extended the benefit to all workers with a percentage depending on which department they work. So housekeeping, front desk, etc also collect gratuities.

Now that minimum wage has increased to $210 a week, with an associated increase in cost to the employer of approximately 20 per cent on salary plus National Insurance, the trade unions want to include gratuity as a payment separate to salary because the employee is losing big time on benefits such as pension, sick leave, maternity leave, etc. It means the employee has a very small benefit based on their salary and not on the net cash wages they receive.

Losing big time is the hotel worker who receives $500 a week and a benefit based on salary of $200 when a worker in another industry receives the same $500 a week with a much higher benefit based on that $500 salary a week. Therefore there is a great injustice against the hotel and restaurant workers.

The trade union wants to correct this injustice. The problem is how they are going about it.

They want to include gratuity as an extra salary apart from minimum wage on which the employer will have to pay extra National Insurance resulting, in some cases, in double, triple and quadruple the National Insurance expenses of the employers. Not surprisingly, Robert Sands, the Bahamas Hotel and Restaurant Employers Association president, commented in the press that after an increase of over 20 per cent in the expenses of the hotels due to minimum wage this could be the nail in the coffin for the Bahamas hotel industry. Such an increase meant the loss of some employees and Shane Gibson, the minister of labour, said the loss of a few jobs was unfortunate but that he is looking at the bigger picture that benefits a lot of workers.

We have a legitimate claim that gratuities should be National Insurance insurable wages in the benefit of workers but we have a problem. We are asking the hotel industry for an expense they have nothing to do with, so it’s wrong the employer should suffer this extra expense. And it would be totally wrong that the government imposes this extra expense on the employer. Therefore, this issue so far cannot be resolved and the employee will keep losing out until a solution is found.

What is the solution that would make the trade unions, employees, employers and government happy?

There is a Chinese saying that a business is good if all parties profit from the deal. In order to obtain this profit for all, we will have to look at good business and accounting practices. Accountants know that revenue must pay its own expenses and we always try to link them in good accounting with related accounts, revenue and expense going to related digits.

We want the gratuity to become a wage paid by the guest that contributes to National Insurance. Therefore the employee will receive the gratuity and will be deducted its portion of National Insurance, the same as if it were salary. And, following the accounting principle, each revenue pays its own expense, as the guest pays this wage, the guest should also pay National Insurance on it, resulting in the gratuity paying the wage to the employee and also paying the National Insurance on it. Please note that it’s wrong that the employer pays National Insurance on a wage the employer does not pay: if a guest pays for it, the guest should pay all expenses related to that payment. This definition would make gratuities a national insurance insurable wage and would have all parties happy.

The trade unions may argue wrongly that all monies are coming from the employee, who is the sole beneficiary of it and would want the employer to pay on an expense on a wage it does not pay, forgetting that it’s the guest who pays for it and should also be the guest who pays for all expenses related to gratuity. Therefore the government must step in and regulate, following good accounting practices.

This is the right solution following accounting good practices. The longer it takes to realise this, the longer it will take the employee to get their rightful benefits.

J C Gomez is a qualified accountant and a former director of administration and financial controller at the BH Riu Palace and cost controller at Baha Mar