First published: 10/07/2018
Last updated: 14/11/2022
The Government passed the Payment of Wages (Amendment) (Tips and Gratuities) Act 2022 earlier this year in July. This week, the Tánaiste confirmed that this new law will come into force on 1st December 2022.
In this article we take a look at which businesses will need to take action in the coming weeks, and what exactly these new rules mean when put into practice.
Does this new law apply to your business?
Before taking any action, you should first confirm if this new law applies to your business.
The need for this new law came about following negative media coverage of a minority of employers in certain sectors who had been using tips to satisfy employee’s basic contractual pay. From 1st December, 2022, this practice will no longer be permitted.
The main sectors targeted by the new law are tourism, hospitality, hairdressing, taxi, and delivery services. There may be additions to this list if tipping becomes prevalent in another sector but for now, the focus remains on the service industries listed above.
Mandatory charges v tips or gratuities
The new law distinguishes between mandatory charges and tips or gratuities.
A ‘mandatory charge’ is a payment that customers must pay for certain goods or services, in addition to the cost of the goods or services.
A ‘tip or gratuity’ is a payment which customers reasonably assume would be kept by the employee or shared with other employees.
Tips or gratuities can be willingly left for an employee or group of employees or made to an employer.
Employee consultation on policy regarding distribution of tips and gratuities
The law requires you to consult with your employees before establishing a policy on how tips or gratuities will be distributed. Likewise, you must also consult with employees before making any material change to a policy on the distribution of tips and gratuities.
Treatment of electronic tips
One of the most fundamental changes coming in under this law is a new obligation in relation to electronic tips.
From 1st December, employers must distribute electronic tips (including card and phone payments) to employees fairly and in a transparent way.
Employers will only be permitted to retain electronic tips in circumstances where the employer:
(i) regularly performs, to a substantial degree, the same work performed by some or all of the employees, and
(ii) retains a share of tips received on a card machine that is in proper accordance with the work performed by the employer.
The new law prohibits employers from making deductions from the tips or gratuities to be distributed to employees (and workers engaged under a contract for services) other than in certain specific circumstances. From 1st December 2022, tips will have to be paid to employees (and workers engaged under a contract for services) in addition to their basic pay.
Mandatory service charges must be distributed to staff
All service charges must be treated the same way as regular tips and gratuities.
As such, any 'service charge' will need to be fairly distributed to staff as if it were a tip or gratuity received on a card machine.
What is a fair distribution of tips?
When deciding how to distribute tips in a fair manner, employers should consider the following:
· the seniority or experience of the employee
· the value of sales, income or revenue generated for the business by the employee
· the proportion or number of hours worked by the employee during the pay period in which the tip or gratuity was made
· whether the employee is on a full-time or part-time contract of employment
· the role and influence of the employee in providing service to customers
· whether the employee was consulted in relation to the manner of distribution, and
· whether there is an agreement, whether formal or informal, between the employer and the employee setting out the policy on how tips or gratuities are distributed.
What about cash tips?
Notably, the new legislation is silent on cash tips. As cash tips are usually paid directly to employees, it appears the lawmakers decided that the distribution rules above should not apply.
Tips and Gratuities Notice
The second key obligation for employers to prepare for is the requirement to display a Tips and Gratuities Notice.
From 1st December 2022, all employers must clearly state their policy on how cash and electronic tips, gratuities and services charges will be fairly distributed to any contracted employees.
The Tips and Gratuities Notice must include the following information:
· whether or not tips or gratuities are distributed amongst employees
· where tips and gratuities are distributed to employees, the manner in which they are distributed and the proportions distributed, and
· whether service charges or any portion of them, are distributed to staff and if so, the manner in which they are distributed and the amounts distributed.
Statements and record keeping
Employers must also give each employee a statement of the tips and gratuities distributed. This statement should include the total amount of electronic tips received during a particular pay period and the proportion of electronic tips distributed to each member of staff. Employees must receive this statement within 10 days of their tips and gratuities being distributed.
How will staff enforce their rights?
The Workplace Relations Commission (WRC) will enforce these new rules through its inspection services. If employees do not receive their entitlements under this new law, they can make a claim to the Workplace Relations Commission (WRC). The Workplace Relations Commission (WRC) has authority to order non-compliant employers to reimburse any unlawful tip or gratuity deductions.
If your business fails to comply with specific obligations under this new law, you are exposed to the risk of a fine up to a maximum of €2,500 on summary conviction.
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