Set the right pay rates

Commission, bonuses tips and gratuities

When you choose a pay system for your business that pays by results, you will need to consider whether to top up workers' earnings with payments such as commission, bonuses, tips and gratuities.

These earnings are on top of basic wages and salaries. Bonuses, commissions and (if paid through the payroll) tips and gratuities also count towards the National Minimum Wage. See our guide on understanding National Minimum Wage law.

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

Bonuses are generally linked to a business' performance but, for some managers, they are also made to reward outstanding individual performance.

Tips and gratuities are often paid to workers in the hotel and catering trade. Read about tips and gratuities within the catering and service industries at the HM Revenue & Customs website.

These payments can be distributed to workers in a number of ways:

• directly from customers
• as a share of a pooling arrangement
• as a share of service charges paid by customers to the employer

Most money payments that are similar to salaries or wages must have income tax and National Insurance contributions deducted. See our guide on pay - an overview of obligations.

If you choose any of these methods of payment, you should also make sure that the system boosts performance and effective teamwork and does not lead to harmful rivalry between workers. Read guidance on appraisal-related pay at the Acas website.

Subjects covered in this guide

• Introduction
• Pay rate systems
• Setting up a new pay rate system
• Making pay comparisons
• Equal pay for work of equal value
• Reviewing pay rates and systems
• Commission, bonuses tips and gratuities

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