On 31 July 2008 the Government announced a consultation on its plans to amend the current National Minimum Wage legislation in respect of tips, gratuities and service charges. The proposal was that tips, gratuities and service charges would no longer count as wages for the purposes of calculating whether a worker has been paid the national minimum wage ('NMW'). The Government has now confirmed that using tips to make up staff pay to minimum national level will be outlawed. The change will come into effect from 1 October 2009.
Current Position
At present, amounts paid by a customer as service charges, tips, gratuities and cover charges count towards NMW pay, if they are paid by the employer to the worker via the employer's payroll and the amounts are shown on the pay slips issued by the employer. However, they can not count towards the NMW where they are given directly to the worker by a customer or are collected by a troncmaster for example, the head waiter in a restaurant, and distributed to the workers. The 'tronc' money does however, count towards NMW pay, if it is passed to the employer for the employer to distribute, and is both paid to the worker through the employer's payroll and reflected on pay slips issued by the employer.
Proposed Changes
The Government confirmed that majority of businesses responding to the consultation of the proposed changes backed the Government's plans and therefore from 1 October 2009 businesses will no longer be allowed to use tips, gratuities and service charges to 'top up' the workers' wages to meet the NMW. The Government has also expressed its concerns over other tipping practices, in particular lack of transparency. The Government is concerned that some employers do not operate a 'fair tipping policy' and do not distribute the collected tips, gratuities and service charges to their workers. The Government will therefore be looking to encourage employers to make it clear to their customers how the tips are distributed and suggested a possible introduction of a logo indicating businesses' tipping practices.
Recommendations
Employers should therefore ensure:
- For the time being, if service charges, tips, gratuities and cover charges are to count towards your staff's wages for the purposes of NMW pay, that they are paid to the worker via your payroll and the amounts are shown on the pay slips issued.
- You plan ahead and review your policies and payroll systems in respect of tips, gratuities and cover charges so that when the new regulations are introduced, your business is ready to make the appropriate changes in respect of staff's wages and clearly communicated information with regards to tips is given to the customers.
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