Hospitality Operators Alerted to New "Tipping" Laws
From October 2009, further new employment laws regarding the national minimum wage will come into affect. Perhaps the most significant of these for the hospitality, leisure and licensed trade is the new rules regarding the treatment of “tips”. This has always been an area of some dispute and it is not, perhaps, surprising to see the Government taking steps to resolve this.
Currently, if a customer leaves a tip for the staff at the end of her meal, perhaps 10% of the bill, she has no real knowledge of what happens to that extra money. Her intention may be to provide an extra bonus to the staff who served her, but what happens once the tip tray is taken behind the scenes? She might be surprised, and perhaps angered, to learn that many operators simply pool these tip monies into a pot and use it to “top up” their staff’s wages in order to reach the minimum wage.
In other words, the actual “pay” they give to staff will be less than minimum wage, but is then raised to meet that level by using the tip money. The legality of this practice revolved around whether such “pooled” tips could be considered to be paid by the employer and therefore would form part of the wage. The Employment Appeal Tribunal has ruled (in a long running legal test case involving three premises - Annabel’s (Berkely Square) Ltd, George (Mount Street) Ltd and Harry’s Bar) that tips, even if pooled and distributed, are not “paid by the employer”. However, some operators could escape this if they used the payroll to disseminate the tips; and the sums were set out on staff wage slips.
That will all be swept away once the new rules come into force in October – tips will no longer be allowed to be used to top up to the minimum wage under any circumstances. The Government is also keen to increase transparency so the consumer knows exactly what happens to their tips. This may result in yet another notice for display, perhaps something along the lines of “Please note that all tips are pooled and shared equally amongst staff unless the customer specifies otherwise”.
The British Hospitality Association, whilst not opposed to the principle, has expressed concern about introducing the changes during the economic downturn and estimates that it cost the industry £450 million. The Dept for Business, Enterprise and Regulatory Reform has estimated that the cost would be £92 million. The new laws have been met with applause by trade unions and consumer groups with many considering the practice unfair to staff and customers alike.
For more information on the test cases, see:
http://www.emplaw.co.uk/news/summaries/396160268289.htm
For further coverage, see:
http://news.bbc.co.uk/1/hi/business/7533863.stm
http://www.guardian.co.uk/money/2009/may/06/tips-minimum-wage-ruling
If you require further information, please contact a member of our Hospitality and Leisure Team