By Dean Last reviewed July 21, 2026
Tipping has its own vocabulary, and the most confusing parts of it are the words that look interchangeable but mean different things legally - gratuity versus service charge, tip credit versus cash wage, tip pool versus tip-out. The definitions below are written in plain language, grouped by where you are likely to encounter the term: on the bill, in wage law, behind the scenes at a restaurant, at the payment screen, or in etiquette guidance. Terms are cross-linked to the longer pages where the underlying topic is treated in depth.
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The line items and charges that show up on a US restaurant or service check.
A voluntary payment from a customer to a service worker, on top of the listed price. In the US, "gratuity" and "tip" are interchangeable in everyday use, though "gratuity" is the more formal term you will see on receipts and contracts.
A percentage (commonly 18% to 20%) that a restaurant automatically adds to the bill for large parties - typically 6 or more guests, sometimes 8. Unlike a service charge, an auto-grat is intended to go to the server and is treated as a tip for tax and distribution purposes. If it appears on your bill, you do not need to add a separate tip; a small extra for exceptional service is optional.
A mandatory fee added to a bill by the business. Legally, a service charge belongs to the business as revenue - it is not a tip and is not required to reach the service staff. Venues use it to cover overhead, admin, taxes, and insurance, and may distribute some portion to workers at their discretion, but the customer has no way to verify that from the bill. This is the key distinction from an automatic gratuity. The FTC’s 2025 rule on unfair fees specifically calls out this confusion.
A flat per-person fee to enter a venue or be seated, common at live-music clubs, bars with entertainment, and some private events. It is not a tip and does not reach the service staff; tipping on top of it follows the usual norms for the venue (table service = tip normally, bar = $1–2 per drink).
How tipped workers are paid, and the federal mechanisms that shape the system.
The lower hourly cash wage that employers in most US states are allowed to pay workers who customarily and regularly receive more than $30 per month in tips. The federal floor is $2.13 per hour and has not moved since 1991; many states require a higher cash wage, and seven require the full state minimum before tips. Tips plus cash wage together must reach at least the regular state minimum wage for every hour worked. See the state-by-state reference for the current rate in each jurisdiction.
The base hourly amount the employer pays a tipped worker out of pocket, before tips. This is the number listed in the "cash wage" column of the tipped-wage table. In federal-floor states it is $2.13; in full-minimum-wage states it equals the regular state minimum.
The amount an employer is allowed to subtract from the regular minimum wage because the worker receives tips. Arithmetically, tip credit = regular minimum wage − cash wage. Under federal law the maximum credit is $5.12 per hour ($7.25 − $2.13); the wider the gap, the more compensation responsibility shifts from employer to customer. Seven states do not allow a tip credit at all.
The legal requirement that if a tipped worker’s cash wage plus tips do not add up to the regular minimum wage for any hour worked, the employer must make up the difference. The rule exists on paper but is hard to enforce in practice: workers often do not know they are entitled to it, and claiming the missing money risks retaliation. So the protection is real in theory but often does not reach the worker.
A long-standing Labor Department guideline that a tipped employee must spend no more than about 20% of their time on duties that do not directly produce tips (side work like folding napkins, rolling silverware, cleaning). Time beyond that is supposed to be paid at the full minimum wage. The rule has been added, removed, and reinstated across different administrations; current enforcement varies by region.
The internal pooling and distribution practices workers and managers use.
An arrangement in which tips are collected and redistributed among a defined group of workers, typically to include back-of-house staff (cooks, dishwashers) and support roles (bussers, hosts, bartenders) who do not receive tips directly. Federal law allows tip pools as long as the employer and managers do not take a share. Pools are common at full-service restaurants and are sometimes the subject of litigation when mismanaged.
The share of a server’s tips that they give to coworkers who supported the tables - bussers, bartenders, hosts, food runners. A typical tip-out is 5% to 10% of the server’s sales, split among the support staff. Tip-outs matter for customers because they are calculated on sales, not on what the customer actually tipped: if you stiff the server, they may still owe the tip-out on your bill and effectively lose money serving you.
A shared container at a counter-service business (coffee shop, bakery, bar) into which customers drop optional cash tips. Tip jars predate the digital tip prompt by decades and are typically pooled among the staff working that shift. Tipping into one is genuinely optional.
Terms for the digital prompts and charges that appear on point-of-sale systems.
The tip suggestion that appears on a point-of-sale touchscreen when a customer pays at a counter. The default is three preset percentage buttons plus "custom" and "no tip." Because the processor’s transaction fee is calculated as a percentage of the total including tip, higher suggested tips also mean more fee revenue for the processor - a structural conflict of interest worth knowing about.
The gradual spread of tip prompts into situations that did not historically ask for one - coffee shops, retail counters, self-checkout kiosks, stadiums. Distinct from the rise in suggested percentages ("20% is the new 15%"). Survey data shows Americans are tired of being asked, but the core situations where tipping is the norm (table service, delivery, salon) have not actually changed.
A tip given primarily to avoid the social discomfort of declining, rather than as a reward for service. Surveys suggest a meaningful share of counter-service tips fall into this category. The etiquette answer is the same regardless of motivation: counter-service tips are optional, and declining is a legitimate choice.
The fee-and-discount structures some merchants use to pass card-processing costs to (or around) the customer.
A fee a merchant adds to the posted price when a customer pays with a credit card. Capped by the card networks (Visa at 3%, Mastercard at 4%, never above the merchant’s actual processing cost) and prohibited or restricted in several states (Connecticut, Maine, Massachusetts, Puerto Rico). The fee covers what the card network charges the business - it is not a service charge and does not reach the staff, so you should not tip on it. See the cash-vs-card-pricing guide for the full breakdown.
A pricing structure in which the posted price is the cash price and card payers pay more. Despite the name, most "cash discounts" at restaurants are actually credit-card surcharges in disguise - the menu price is the cash price, and a fee is added for card payment. For tipping purposes, this is a payment-method adjustment, not a food-value reduction: the tip should be on the food value, and cash payers need no special calculation. See the cash-vs-card-pricing guide.
A reduction in the food price - a seller coupon, gift card, percentage-off promotion, or similar discount. Unlike a cash discount (which is a payment-method adjustment), a coupon reduces the transactional value of the food itself. Because the server served the full-price meal regardless of the coupon, you should tip on the pre-coupon (full) price. The calculator recovers this for you automatically when you enter the coupon amount. Seller coupons are applied before sales tax in every state; manufacturer coupons (rare in restaurants) are applied after tax.
A pricing format in which a merchant displays two prices for every item - a higher card price and a lower cash price. Structurally a cash discount (the card price is the posted price; cash payers get a reduction) and legally treated the same way: legal in all 50 states, no card-brand registration required. Common at gas stations and increasingly at independent restaurants.
Vocabulary from hospitality management and long-standing etiquette guidance.
Under federal law, a worker in an occupation that "customarily and regularly" receives more than $30 per month in tips. This is the threshold that determines eligibility for the tipped cash wage and tip credit. The category includes servers, bartenders, bussers, hosts in many setups, hotel housekeepers, valets, and some delivery workers; it does not include cooks, managers, or most kitchen back-of-house.
A restaurant or venue that pays its workers a full wage and asks customers not to tip. A small but growing segment of the US industry, more common in higher-end restaurants and in some cities. When a venue is genuinely no-tip, it will say so on the menu or signage; tipping in such a place is unnecessary and can be declined without awkwardness.
The etiquette convention that you do not tip the owner of a business because they set their own rates. You tip their employees, who do not. This is the cleanest way to resolve the "do I tip the photographer?" question at a wedding or the "do I tip the salon owner?" question at a haircut - if they own the place, tip is not expected; a thank-you note or a thoughtful gift is appreciated.
Accidentally tipping twice for the same service - most often by adding a cash tip on top of a bill that already included an automatic gratuity or service charge. Reading the bill carefully before adding anything is the only reliable prevention. If the line says "gratuity included," you are done; if it says "service charge," ask the venue whether it reaches the staff.
Most of these definitions connect to a longer treatment elsewhere on the site. The tipped minimum wage reference covers the cash wage, tip credit, and top-up rule in detail with state-by-state figures. The tipping culture page goes deeper on POS tip prompts, tip creep, and guilt tipping. The wedding tipping guide applies the service-charge-versus-gratuity distinction to vendor contracts, and the full guide shows the dollar ranges these terms describe in practice.
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