Tips and gratuities

Tips & Gratuities

Restaurateurs and other hospitality sector businesses should not bank on Brexit delaying the Government’s plans for legislation designed to deal with tipping protocols. 

In December last year, the Government said it would introduce legislation as soon as possible to stop employers making deductions from tips and gratuities, including any so-called ‘administration’ charges which are often levied where tips are given through card payments.

It remains unclear whether the sharing of tips will be restricted to those who tend to be the lowest-paid – waiting and kitchen workers – or whether employers will be able to manage a sharing system that includes higher-paid staff such as chefs and front of the house.

The Government was clear in its plans to force employers to hand over all tips to hospitality sector staff and while this has not translated into legislation yet, employers should not ignore the best practice involved in matching up to such changes.

Profitability is increasingly tied to reputation and customers are likely to check with staff what will happen to any tip they may leave. This makes it important for employers to be ahead of the curve and not wait for legislation to force them into handing tips over.

Whether tips are paid through a set percentage service charge or added at the discretion of the customer in cash or card payments, currently there is no law to control how tipping in the workplace is managed.  There is a voluntary code of practice which encourages employers to be transparent, but it does not place employers under any obligation as to how the tips are managed and distributed.

The only restriction on employers is that tips cannot count towards the national minimum wage (NMW).  The NMW Regulations apply to any eligible worker, whether they are paid by the hour or on some other basis, and calculations must be made to check if the equivalent hourly rate is at the right amount and any gratuities paid at work must be on top of the NMW.

Some restaurants may have what is known as a tronc scheme.  This is effectively a self-administered scheme for staff, with a tronc master appointed to distribute tips between staff.  The employer is not able to influence the operation of the scheme or how the tips are shared.

Unfortunately, there are still too many cases of tips being used to cover the company’s card transaction charges, or to recompense for any till shortages or even breakages.  It’s inevitable that this legislation will be controversial in many quarters, but ignoring a problem is not a solution.

For further advice, please contact a member of our team on 01491 572138 or via email – mail@mercerslaw.co.uk

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