Service charges, tips, gratuities and cover charges - levelling the playing field

The Government has issued its response to the consultation on the use of service charges, tips, gratuities and cover charges in payment of the national minimum wage. The key change is that from 1 October this year it will no longer be lawful for employers to use any of the above types of tips towards the payment of the national minimum wage.

The purpose of the consultation was to consider two particular issues: the impact of regulatory change to exclude the use of tips in the payment of the national minimum wage by employers, and how the Government could improve information and awareness for consumers about what happens to their tips. At the moment mandatory and non-mandatory cover charges, service charges, tips and gratuities that are a payment by the customer in appreciation of service may be used in the payment of the national minimum wage when such cover charges, service charges, tips and gratuities are collected by the employer and then paid through the employer’s payroll. From 1 October this will no longer be the case.

In respect of raising consumer information and awareness, the Government intends to introduce a best practice guide for businesses on how to manage tips in establishments and how to make tipping practices more open and transparent for the consumer. The Government is also giving further consideration to the idea of a logo or brand that signpost tipping practices in establishments. The Government is going to undertake further consultation with interested groups in relation to both of these proposals.

The outcome of the Government’s response to the consultation will clearly have particular implications for employers in the hospitality and leisure sectors where tipping is most prevalent. For some employers the changes may mean an increase in labour costs, but in making the changes the Government determined that this consideration was outweighed by the need for fairness for consumers who were leaving tips for workers in good faith in the belief that they go directly to the worker rather than being used in payment of the national minimum wage.