The Government has announced its intention to amend the law so that tips can no longer count towards payment of the National Minimum Wage (NMW).
All workers are entitled to receive the minimum hourly wage. However, bars and restaurants currently operate a wide variety of practices when it comes to dealing with tips and it depends how these are paid as to whether they are taken into account as remuneration contributing to the NMW.
Currently, tips paid to a member of staff by a customer do not count as wages for the purpose of the NMW. For example, this would be the situation in a restaurant when the customer gives a tip directly to the waiter. However, tips paid through the employer’s payroll do count for the purpose of calculating the NMW. This would be the case where a restaurant adds a service or cover charge to the bill and remunerates employees through the payroll.
The proposed changes will end the practice of employers paying staff an hourly rate below the minimum wage level and then using gratuities and service charges processed through the payroll to ‘top up’ wages in order to comply with the NMW legislation.
When announcing the Government’s intentions, Business Secretary, John Hutton, said, “Hundreds of thousands of people in the UK have jobs in sectors where tipping is commonplace. When people leave a tip, in a restaurant or elsewhere, they expect it to go to service staff and as consumers, we've got a right to know if that actually happens. This is an issue of fairness and common sense and it's one many people clearly care a lot about.”
The Government also wishes to encourage employers to make it clear how tips are distributed so that customers know where their money is going and whether or not the establishment operates a fair tipping policy.
A consultation on implementing the Government's plans will be launched later this year. Following consultation, the law will be changed and guidance issued for both workers and employers in order to ensure smooth implementation of the changes.