Employment Law Update (May 2009)
Tips will no longer count towards the National Minimum
Wage
The Government has announced that it will change the law from
1st October to prevent employers in bars, restaurants
and other service activities from using tips received from
customers towards payment of the National Minimum Wage (NMW).
Employers in the service sector who have used money received
from tips, service and cover charges towards employees' pay will no
longer be able to use the money to pay staff the National Minimum
wage.
How the law will work
Cash Tips given by customers
As the law now stands, employers can use cash tips given by
customers towards payment of the National Minimum Wage provided the
payments are made through the payroll and are clearly shown on
employees' pay slips.
From 1st October, employers will no longer be
permitted to do this. Employers will have to pay employees
the NMW from their own resources and cannot use tips towards this
minimum figure.
This change will have a significant impact on employers who use
cash tips towards payment of the NMW as it seems clear that
employers will be obliged to pass on all cash tips to their
employees in addition to paying at least the NMW.
Employers will still be able to distribute tips to top up wages,
but only for amounts above the NMW level.
Service Charges and Cover charges
Some businesses may charge customers a fixed "cover charge", or
levy a "service charge" (often of between 10 and 15 percent of the
bill) on customers' bills. Currently, employers can use both
cover charges and service charges towards payment of the National
Minimum Wage provided the payments are made through the payroll and
are clearly shown on employees' pay slips.
From 1st October, the government has stated that
employers will no longer be permitted to use service or cover
charges towards payment of the NMW.
However, for employers the position about whether such service
and cover charges should be passed on to staff in full seems much
less clear-cut than with discretionary cash tips, as the amounts
collected from customers are likely to be viewed by employers as a
contribution to general overheads rather than as part of the work
it is undertaking on tips, the government is proposing that
employers should be more transparent in telling customers what
happens to tips and service charges considerable pressure from both
customers and the government for employers to pass service charges
on to staff in full.
The details of the regulations have not yet been
published. Mentor will provide further guidance when this
happens.
Please read legal information.