Following a consultation on the use of tips and service charges to make up the national minimum wage (NMW), the Government announced last week that it will outlaw the practice from October this year. It has also promised to produce a new industry code of best practice.
Currently the regulations state that tips and gratuities given directly to workers by customers and are retained by the workers without any other party being involved do not count towards the NMW. However, if the service charges, tips, gratuities or cover charges are paid by the employer to the worker via the payroll then the tip can count towards national minimum wage pay.
The consultation received wide support, with a majority of businesses who responded giving the proposed changes their backing.
Coming hard on the heels of this announcement by the government, the Court of Appeal has held in Commissioners for Her Majesty's Revenue and Customs v Annabel's (Berkeley Square Ltd) and ors, that tips distributed through a “tronc” system (whereby the employer hands the money to a “troncmaster” who distributes it among workers) do not count towards the national minimum wage.
This decision will be reported more fully in a future LELR (see weekly LELR 85 for details of the Employment Appeal Tribunal decision).