News & Legal Updates
Sign up to news & legal updates
I always tip. Even if the service is rubbish and the food is horrible, I still feel strangely compelled to leave a tip. In fact, even when I have specifically said “no” to mushrooms and then find mushrooms on my plate, I will still always calculate my 15%. I suspect that this is a throwback to the many years I spent waiting tables as a student.
However the world of tipping also has some interesting employment law aspects.
Can an employer use tips to satisfy their national minimum wage obligations?
No. The National Minimum Wage Regulations create obligations on employers to pay workers a basic hourly rate. Prior to 2015, an employer could include tips and service charges which were “paid by the employer” through its payroll to count towards a worker’s wage. However since the regulations were amended, such tips cannot count towards the employer’s national minimum wage obligations.
Should tips be taxed and, if so, who is liable for this?
Yes. Tips should fall subject to tax and national insurance contributions. Ordinarily the employer would fall liable for these. Generally most restaurants are following the HMRC guidelines – tips are collected by the employer and then put through payroll. However, if customers give cash tips directly to waiting staff who keep them without any involvement from the employer, the responsibility for tax on these payments will fall to these employees (although in such specific circumstances employees may be able to avoid having to pay national insurance contributions on these sums).
Can I choose to ignore a compulsory service charge?
No. If the charge is clearly labelled as compulsory, it will be very difficult to avoid. In such situations, the compulsory service charge is not a tip and therefore if the employer chooses to share this charge with its employees, this payment should be treated by the employer in the same way as wages (i.e. subject to tax and national insurance deductions).
Can I ensure that any tip which I leave is given to the person who served me?
No. The only way to ensure that the person who served you gets the tip is to give it to them directly. And even if you do this, that person may still be subject to internal procedures regarding the pooling of tips and may still have to declare your tip to the employer.
What is the impact of failing to deal with these issues correctly?
Workers who do not comply with these issues risk not only being prosecuted for tax avoidance but also potentially finding that they cannot rely on the terms of their contract in an employment tribunal. If a contract is illegal or tainted with illegality, it cannot be relied upon. Tribunals are frequently refusing to hear claims where parties have not complied with employment legislation.
So whilst all restauranteurs seek to have limitless reservations, they should ensure that they have no reservations about their treatment and taxation of tips. Take professional advice about these issues now. Otherwise you may find yourself in a pickle in future, having to mustard the strength to ketchup with your competitors and existing legislation.
Partner – Head of Employment Law
The opinions expressed in this site are of the author(s) only and do not necessarily represent the opinions of Blackadders LLP.
Blackadders takes all reasonable steps to ensure that the content of this site is accurate and up to date. The site is not, however, intended as a substitute for seeking legal or other professional advice but rather as an informative guide to the services provided by Blackadders and topical legal developments. Site visitors should always seek advice tailored to their specific situation. Consequently, Blackadders accepts no responsibility for any loss or damage suffered by anyone acting or failing to act on the basis of information contained on this site. Downloading of material contained on this site is at the user’s own risk and all necessary virus checks must first be carried out by the user. Blackadders is not responsible for the material found on any web sites linked to this one and links to this site may only be made with Blackadders prior consent.
Blackadders owns the copyright in this blog and all material contained on it. The material on this site may be downloaded for personal use only and must not be altered. Otherwise, Blackadders’ written consent is required before any material on this site is reproduced, copied or transmitted in any way.
Information passed to us via this site is kept confidential and will not be disclosed to third parties except if authorised by you or required by law.
© Blackadders LLP 2011
Members of the Law Society of Scotland. Authorised to conduct Investment Business under the Financial Services & Markets Act 2000 by the Financial Services Authority.
Blackadders Solicitors is a trading name of Blackadders LLP, a limited liability partnership, registered in Scotland No SO301600 whose registered office is 30 & 34 Reform Street, Dundee, DD1 1RJ. Reference to a ‘partner’ is to a member of Blackadders LLP.Back to News & Legal Updates