The Department for Business, Energy and Industrial Strategy (BEIS) has recently announced that plans to ensure that tips left for workers in the service industry go directly to them, in full.
The announcement followed public outcry when it was discovered many restaurants took up to 10% of tips left for staff via card payments. Currently, whilst cash tips must be provided to employees, there is no legal obligation for employers to act in good faith in relation to tips paid by customers via debit or credit card.
Legal background
Historically cases on tipping had decided that unlike cash tips, tips paid by card and cheque became the employer’s property and could be set off against pay and the obligation to pay the National Minimum Wage.
In 2009 changes were introduced to the National Minimum Wage rules providing that any payments paid by the employer which represent tips or service charges could not be used to make up the National Minimum Wage. Since 2009, any tips paid via payroll therefore must be in addition to, rather than part of basic salary.
However, these rules do not impose an obligation on employers to ensure that employees receive the full value of any tips paid by the customers that they serve. Although there is a voluntary Code of Practice on service charges, tips, gratuities and cover charges, this is not binding and itself provides that employers can make deductions.
At the moment employers are free to retain these card tips, or make significant deductions from tips before passing these to employees if they wish.
Next steps
The Government has indicated the new legislation is due to be introduced at the earliest opportunity, although it is likely to take a backseat while Brexit negotiations continue.
Employers in the service industry should review their current practices and, if they make deductions, start to plan for the financial impact the proposed changes will have when brought into force.
For further information about your National Minimum Wage obligations and obligations in relation to tips, please contact me.