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Staff tipping – legislation

Staff tipping hit the headlines earlier this month as the Government unveiled plans to implement legislation on the issue at the ‘earliest opportunity’,

Staff tipping hit the headlines earlier this month as the Government unveiled plans to implement legislation on the issue at the ‘earliest opportunity’, reports Michelle Perrett.

The Department for Business Enterprise and Industrial Strategy (BEIS) unveiled its inten- tion to ensure that tips left for workers go to them in full without deductions. While BEIS did admit that most employers do act in good faith it said there was evidence pointing towards poor tip- ping practices ‘including excessive deductions’.

It said the legislation would give consumers the reassurance that the money they leave to reward good service was going to the staff as intended.

The whole issue of tips has been a controversial one for operators for many years. It was as far back as 2003 when the Inland Revenue, as it was called, set up Project Gourmet to investigate food venues for their procedures of dealing with staff tips and service charges.

This latest focus on tips goes back to 2015 when media reports accused a number of restaurant chains of holding back some or all of the tips for staff.

The Government called for evidence with a con- sultation launched in May 2016. In the consultation document the minister in charge at the time Sajid Javid said: “Like many of us I was surprised to learn of claims that some employers, including some of our most well-known high street chains, were acting unfairly when it came to discretionary payments for service.”

He highlighted the media reports, which pointed to practices such as employers charging an adminis- tration fee for handling discretionary payments or even keeping the payments.

The consultation asked for evidence of employers charging an administration fee for handling service charges; employers keeping the whole of a service charge, and employers charging workers a fee based on table sales. It also requested evidence regarding the current levels of transparency afforded to both consumers and workers.

It was here that the trail went cold as the hospitality industry waited two years for the results of the consultation.

There was some heavy criticism for the Government’s lack of action on the issue. In July this year ministers were accused of breaking their promises to low-paid workers after a freedom of information request made by The Independent Newspaper found little action had been taken by the Government.

But the surprising announcement from BEIS earlier this month saw some raise concern about the legislation being an unnecessary burden on the sector.

“The hospitality sector took immediate voluntary action to improve transparency and address concerns around the treatment of tips when the issue was first raised,” said UKHospitality chief executive Kate Nicholls. “UKHospitality and Unite have developed an industry Code of Practice which deals with the fair distribution of tips among all staff, not just waiters. As a result, best practice has been widely promoted across the sector.”

She said that some smaller businesses might retain a small proportion of tips to cover the costs of credit card charges and processing payments. But this was a small amount and the practice had been approved by Unite.This view was supported by Casual Dining Group, owners of brands including Café Rouge and Bella Italia, who also came out against the move calling the comments from the Government ‘inaccurate’ and ‘ill-informed’.

“Our staff keep 100% of cash tips, and 97.5% of credit card tips, after a 2.5% administration charge to cover credit card and banking administration charges,” a spokesman said. “Our staff are at the heart of our business, and are well paid. Our policy on tips is in line with govern- ment sponsored guidance issued in 2009 and which was approved by Unite and HM Revenue and Customs (HMRC).”

While clubs were not caught up in the media frenzy at the time any regulation could have a potential impact on operations.

However, the Golf Club Managers’ Association (GCMA) said it backed the Government move. “The GCMA is in favour of the proposed regula- tion as it only serves to formalise what we believe every golf club should be doing,” said Jim Cunning, golf management adviser and researcher at the GCMA.“The GCMA will not condone any club who does not pass the full value of tips received to their staff. We are not aware of any clubs, that are members of the GCMA, who do not pass on all tips to their staff and are therefore confident that any new regulation will have no effect on future operations.”

Unite, the union which has campaigned for staff to keep 100% of tips says ‘the devil will be in the detail’.“This step in tackling tipping abuses has been a long time coming and is in no small part down to the determined campaigning of Unite and its members,” Unite regional officer Dave Turnbull said. “Unite will be seeking assurances from ministers that the legislation the Government introduces truly delivers fair tips for some of the lowest paid workers in the UK and that it is done so in a timely manner.”

HMRC advice:

  • There is a voluntary code of practice on tips that was published by the Government in 2009.
  • From 1 October 2009, service charges, tips, gratuities and cover charges were no longer used to make up national minimum wage pay.
  • If an employee receives cash tips directly from a customer, they should pay tax on them but not National Insurance.
  • If the employee does not fill out a tax return then HMRC will estimate tips based on information from the employee or employer.
  • If an employer pays tips to the employee directly they are responsible for making sure income tax is paid through PAYE.
  • If tips are pooled together and shared out - this is called a ‘tronc’. The person who looks after it is called the ‘troncmaster’ and they are responsible for making sure income tax is paid.
  • If the employer decides how the tips are shared out, National Insurance is due as well as tax.
  • If a service charge is voluntary the employee must pay tax and National Insurance in the same way as for tips.

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