Last week the Government published details about its plan to introduce new legislation to prevent businesses from keeping, or making deductions from, tips meant for their staff (other than deductions required by tax law). It estimates that this measure will help approximately two million staff working across the hospitality, leisure and services sectors, who rely on tips to top up their income. The announcement comes following a Government consultation on tipping that was launched in 2016.
Alongside the requirement for employers to pass on all tips received, they will also be required to put in place a written policy on tips and keep records of how tips have been dealt with. Staff will also have a new right to request information about their employer’s tipping record and will be able to bring a claim in an Employment Tribunal if their employer breaches the rules.
The new legislation is expected to come into force next year and we will update our guidance in due course. In the meantime, here’s a refresher on the current rules when it comes to tips:
What are the current rules on how to deal with tips received from customers for my staff?
You’re currently under no legal obligation to deal with tips or gratuities in a particular way, or even to pay them to your staff, regardless of how they are paid by your customers.
The Government has, however, set out best practice in a voluntary Code of Practice, which was introduced in 2009. This advises that businesses should be open and transparent with both their customers and their staff about how they deal with tips and gratuities.
What does this mean in practice?
It means that you should provide your staff with a copy of your relevant policies, ensuring that they understand them, and you consult with them about any changes.
Your policies should include:
- How service charges, tips and gratuities will be distributed to staff (eg whether there is a tronc scheme in place etc);
- Whether certain payments are treated differently (eg cash tips vs card payments);
- Any permitted deductions that may be made (eg to cover till shortages); and
- How tips and gratuities will be dealt with during staff absences.
Do tips and gratuities paid to my staff count towards the national minimum wage?
No they don’t.
Any tips and/or gratuities that you staff members receive at work (in any form) do not count towards the national minimum wage or national living wage (although they are still taxed).
For further guidance on tips and gratuities, including what a tronc scheme is and what your obligations are as regards paying income tax and National Insurance contributions, see our Q&A on Staff pay and Process for paying staff.
Before joining Sparqa Legal as a Senior Legal Editor in 2017, Frankie spent five years training and practising as a corporate disputes and investigations lawyer at leading international law firm Hogan Lovells. As legal insights lead, Frankie regularly contributes to Sparqa Legal’s blog, writing content across employment law, data protection, disputes and more.