Tips and gratuities: are employers getting it right?
Tipping is common in the hospitality, leisure and service sectors. But what obligations are there on employers whose workers receive tips from customers?
The current rules on tips and gratuities
Tips can be paid via various routes such as:
- A mandatory or discretionary service charge;
- Tips paid to the worker via a credit/debit card payment;
- Cash paid to either a tip jar or directly to the worker; or
- A tronc scheme where tips are distributed equally between all staff (the person who looks after the system is called the troncmaster and the employer has no say in who participates and how the tips are shared).
Workers have the right to be paid at least the national minimum wage. If tips and gratuities are paid at work they cannot count towards the minimum wage and should be paid on top of it.
There is currently no law on tipping in the workplace and the only guidance for employers is contained in a code of practice which encourages employers to be transparent (to both workers and customers) about how they deal with and distribute tips. However, the voluntary nature of the code means that employers are not under any obligation to give all tips received to their workers. Tips added by card or via a service charge are particularly susceptible to abuse with some employers deducting up to 10% of tips as an ‘administration fee’.
The future of tipping?
With the use of paper money in decline, there is an increasing demand for legislative intervention in this area. The government launched an investigation in 2015 in response to a union campaign which highlighted the abusive tipping practice in several major restaurant chains. This was followed by a consultation in 2016 (read more about this in our earlier blog) and an announcement by the Government in 2018 about plans to introduce a new law prohibiting employers from retaining any percentage of employees’ tips, no matter how they are received. So far, there have been no further developments so it is unclear when this new law will come into force.
For now, customers should remain vigilant to the fact that not all methods of tipping are the same. For employers, it is likely that change is coming but in the meantime it is good practice to have a clear policy in place regarding how to deal with tips.
With thanks to Rebecca Neilson, our summer student, for writing this blog.
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