Taxation, wages and use of cash; the keys to Ayuso’s controversial campaign on tips

A communication campaign by the Community of Madrid has put the spotlight on an issue that rarely attracts media or popular attention, beyond the classic after-dinner talk about its amount: tips. With the intention of encouraging their payment, the Madrid government launched an advertising campaign that has had a notable impact on social networks: the video that asks for Madrileños be generous When it comes to paying the bill in bars, it already has more than 1.4 million views. Tipping, exposes the advertising cut, is a way to help hospitality employees fulfill “their little dreams”, such as language courses or piano lessons.

“We believe that the fact that tips help fulfill the dreams and needs of hotel workers should not be at the center of the debate,” defends Ángeles Balué, general secretary of the federation of services Workers Commissions from Madrid. “The center of the debate should be decent wages, regulated in a collective agreement, which is really what grants rights and stability. The negotiation of the next agreement, which we have at the beginning of next year, will have this direction as its main approach , trying to recover the loss of purchasing power derived from inflation”, he anticipates.

For his part, Emilio Gallego, Secretary General of the Business Confederation of Hospitality of Spainargued at a press conference that tips are a relationship between the client and the worker that in no case does it represent a company policy nor is it regulated by it. “ANDIt is a campaign authored by the Community of Madrid to which we wish the greatest success,” he added, after recalling that it is the workers themselves who decide how tips are managed and that it has a significant cultural bias.

While in other countries it is practically obligatory, tipping is voluntary in Spain. Nor is it common for the concept of payment for the service to be included in the account to be paid, as is the case in other latitudes. The United States is the best-known example: tipping is part of an unwritten agreement and, in fact, accounts for the largest part of the salary of waiters, who are required (at least on paper) to declare this income.

“Whenever one receives a tip after making an effort to give a good service, it is very appreciated,” says FM, a waiter in an establishment from La Mancha. “This month with the tips I have bought tobacco and a Christmas present, it is a notable part. The amount fluctuates, but perhaps it could be around 50 or 60 euros a month, which is very good.”

There are no up-to-date studies with data on how generous we Spaniards are in this regard, however, custom tends to link the amount to the type of establishment, service and volume of the transaction. The same tips are not expected in a high-end establishment in Ibiza as in a humble restaurant or when ordering pizza at home. However, the launch of the Madrid campaign is not accidental. The price boom coupled with the digitization of payments are clear suspects of having caused consumers to think twice about tipping.

Who is it delivered to?

As Gallego indicates, tipping has a lot to do with culture. The campaign focuses on bars, but it is not the only sector that traditionally receives tips. Hairdressers, taxi drivers, home deliveries or tourist guides are also regular recipients. Why some sectors receive and others is not difficult to explain if Gallego’s explanation is not attended to. They all share a common characteristic: services in which the worker attends closely to the user.

How much

The amount to be paid depends on the will of the client. However, according to a study by the N26 bank, it is usual to leave around 10% of the total amount of a restaurant bill. The percentage, according to the bank, is less than that paid in other countries.

How they are delivered

The method chosen to pay it also influences the distribution of tips. Applications have emerged to facilitate the payment of tips digitally, but cash is still the most widespread method when it comes to giving them. The Bank of Spain data show a solid increase in card payments since 2020, so not good news for the health of tips.

In 2019, a total of 4,536 million card operations were carried out in Spain for an amount of 161,343 million euros. In 2021, there were 6,101 million transactions with this payment method that moved 195,246 million euros. The trend is only accelerating. According to the latest data available, in the second quarter of 2022 card payments grew by 23.56% compared to the same period in 2021.

“As a consequence of the pandemic, payment by card is used much more than payment in cash. Many times tips were linked to the coins that were left over after paying the bill. Now it depends on whether the establishment allows you to include that tip at the time to pay with a card, which opens another question, that of distribution. If the tip is included in the card payment, it is the employer who has it in order to make the distribution. In this situation, tips have decreased, but more everything is due to the payment method, not so much because people want to or don’t want to,” Balué details.

This same problem has also been experienced by others who depended on cash, such as street musicians. Some artists who have had to follow in the footsteps of Londoners and also digitize themselves so as not to lose volume of income.

Do they tax?

Officially, tips are subject to personal income tax. In practice, since the amounts are small and are received in cash, control is difficult to carry out. “The Directorate General of Taxes (DGT) interprets article 17.1 of Law 35/2006 of Personal Income Tax considering that the amounts received by the worker as tips are earned income that, therefore, are subject to the tax and its system of withholdings on account and, in turn, the company, obliged to practice them”, remember the law firmaudit and law Del Bas.

Carlos Cruzado, president of the Treasury Technicians (GESTHA), reflects on the Madrid initiative. “The campaign of the Community of Madrid puts two issues on the table. On the one hand, that the salaries of the hotel industry are not enough to cover the dreams of the members of the sector. On the other hand, what is hinted at is that the tips can be a significant amount when it comes to getting certain activities done.

Cruzado says that what is often overlooked is that tips are regulated by tax law. “They are considered in the income tax law and, according to the tax doctrine of the General Directorate of Taxes, they are considered income from work. Within the tax law, the obligation for employers to withhold and pay the income is expressly established. fee corresponding to tips. This is something that must be taken into account,” he describes.

“What we highlight from our sector is that tips, compared to what is generally thought and even compared to what has been published these days in some media, are regulated from a fiscal point of view,” he concludes. .