Last week, the business secretary, Greg Clark, announced as part of the government’s ‘Industrial Strategy” that new legislation will be introduced to combat unfair tipping practices. Legislation in this area will be designed to ensure that workers receive the tips that they earn, and to protect customers’ expectations when they give tips in good faith to service workers.

Although no draft legislation has been published yet, legislation in this area will likely have a large impact on the food & drink service industry, since a large proportion of workers receive tips. Currently, there are 150,000 hotels, pubs, and restaurants in the United Kingdom, which employ approximately two million people. As a result, when new legislation eventually comes into force, it will be an important area for many employers acting within the food & drink industry to get right.

In the meantime, what can employers do to make sure they are compliant with the current law surrounding tipping practices?

Current Landscape

Workers normally receive tips by one of two methods of payment, either by cash or card. Tips given by cash do not usually cause problems, because they are normally kept by the individual or pooled and divided amongst other workers.

When tips are given by customers via card payments which are then passed directly to the employer; there can be issues if employers charge administration fees to pay tips back to the employee. In some cases, employers have deducted as much as 8% from employees’ tips under the guise of administration charges.

Employers need to act with caution when carrying out deductions from tips, because in some cases tips may be classed as wages. Section 27(1)(a) Employment Rights Act 1996 say that “wages” include “emoluments” made under a contract of employment or “otherwise”. In Soudiere v The Capital Hotel (Knightsbridge) Ltd UKEAT/915/98, the EAT held that the definition of “otherwise” included tips because they were paid by the customer and not the employer. The result is that employers can be found liable of unlawfully deducting wages, when they have failed to pay workers tips in certain situations.

It is important for employers to be aware that they cannot use gratuities or tips processed through their payroll system to contribute towards the payment of the national minimum wage to their staff members. They do not count as wages under the National Minimum Wage Act 1998

Practical Steps for Employers

Practical steps for employers in dealing with are set out in non-binding guidance: “National Minimum Wage: A Code of Best Practice on Service Charges, Tips, Gratuities, and Cover Charges” which was published by the Department of Business Innovation & Skills in 2009.

The general guidance set out says that employers should:

  • Make employees aware of how tips are to be divided, whether they can expect any deductions, and why deductions are taking place; and
  • Consult with employees and try to reach an agreement over any changes to a tipping policy.

It also recommends that an employer should implement a clear policy on tipping, which includes information on:

  • How tips are to be divided amongst staff;
  • Whether a tronc is used to collect tips paid by card, and the identity of the tronc master;
  • Any differentiation of treatment on card or cash payments;
  • The level of deductions made to tips; and
  • The effect of leave or absence due to ill health has on the division of tips.

The Business Secretary has stated that legislation in this area will be introduced at the “earliest possible convenience”. The likelihood of this being in the near future is slim, given the imminent Brexit timetable for UK government. Never the less, it is important for employers in the Food & Drink Sector to be aware of potential changes in this area, and to deal with their employees’ tips in line with the governmental guidance.

If you would like more information or require advice on how to get prepared for the new law, please get in touch with our Employment Team.