Don’t ‘pay the price’ for unlawful tip distribution

In many industries tips and gratuities are viewed as commonplace, seen as an effective way for customers to show their appreciation for a job well done. Currently, employers have a reasonable amount of flexibility when it comes to distributing tips, however recent workplace disputes have resulted in the promise of a change in legislation.

As announced during the Queen’s speech in October, a new Bill will be introduced in the near future to ensure that tips are ‘distributed fairly’ to ‘those who work hard to earn them’. This promise echoes the commitment made by former Prime Minster Theresa May, who originally set plans in place to ensure staff receive all tips that relate to their service at work.

Employers who manage tips will be keen to assess the details of any new legislation, as it is likely that many will need to amend their business practices accordingly. After all, tipping is a complex area in itself, without considering whether the new laws are going to apply to cash tips, gratuities paid through cards or service charges automatically applied to restaurant bills.

Additionally, many organisations have different arrangements in place as to how they manage tips, with some choosing to allow staff to handle these directly and others making arrangements for a tronc system. For example, the restaurant TGI Fridays notably faced strike action earlier this year over a new pay policy where waiters have a 40 per cent deduction from customer tips, with the deducted money being distributed to staff working in the kitchen. How such an arrangement will be affected by the new law on tip deductions will be unknown until the legislation is released.

Until then, employers will be free to proceed as normal when it comes to managing tips, as in contrast to popular belief there is no requirement for employers to provide staff with any tips they earn. Instead, the non-mandatory Code of Best Practice simply encourages employers to make staff aware of their approach when it comes to distributing service charges, tips and gratuities.

With this being said, organisations do have to ensure that they are not using tips as a way of ‘topping up’ staff salaries to meet National Minimum Wage (NMW) requirements, especially given the increase in underpayment complaints being made to ACAS and HM Revenue and Customs (HMRC). Instead, any tips distributed to staff must be in addition to NMW.

In light of the impending legislation, it would be wise to review any existing methods for handling tips, especially if this has previously been a source of unrest amongst staff. This will ensure that employers are in the best position to make any necessary changes when the new tip requirements are introduced.

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