Consultation paper on service charges, tips, gratuities and cover charges

The Government has issued a consultation paper on service charges, tips, gratuities and cover charges. The purpose of the consultation is to look at two issues: whether these payments should count towards the payment of the national minimum wage by employers and how the awareness of consumers to the treatment and distribution of tips in businesses can be raised.

The key change on which the Government is seeking feedback is its proposal to prohibit any service charges, tips and gratuities paid through the payroll by the employer being used towards payment of the national minimum wage. Service charges, tips and gratuities that are not paid through the payroll are already exempt from use as a payment towards the national minimum wage. The Government has recognised that this change in the law is likely to most greatly impact employees working in restaurants, hotels and cafes.

The Government is also looking at ways that it can improve consumer awareness of:

· who tips go to;
· what proportion might be absorbed by the business to cover costs; and
· how the tips are distributed to workers.

It has indicated that it believes the hospitality and leisure sectors will have a significant role to play in this. The Government has also indicated that it may produce guidance on how businesses should distribute tips fairly amongst workers, what would be considered to be a fair administrative cost for business and how businesses should make information available to consumers (either through free- standing signage, information on menus or on websites).

The consultation process is open until 16 February 2009. Further detail about how your business can make its views count can be found at www.berr.gov.uk/consultations/page48902.html.