Marc Jones: Key compliance considerations for employers dealing with tips for staff


There are approximately 150,000 UK businesses in the hospitality, leisure and service sectors where tipping is common. These sectors employ some two million workers and are an important part of the UK economy. Concerns have been raised about employers’ treatment of tips, gratuities and service charges to workers and the transparency of such practices to both customers and workers, which has been the subject of recent government consultation.

Tips and gratuities are additional payments given by the customer over and above the amount of the bill and any service charge and do not count towards the national minimum wage and national living wage. They fall into two categories: cash tips, given to an individual worker; and non-cash tips paid by card or cheque, being additions to the amount on the bill and paid to the establishment.

Normally workers receive cash tips either individually or collectively via a Tronc (a separate organised pay arrangement sometimes used to distribute tips, gratuities and service charges) and those workers are responsible for making proper disclosure to HM Revenue and Customs (HMRC) to account for income tax in respect of these earnings. Non-cash tips and any service charge is paid to workers by the establishment with income tax deducted under PAYE. There is no legal requirement for the establishment to allocate a particular proportion of the service charge or non-cash tips to workers. Furthermore, an establishment can make a deduction for costs to cover credit card and banking charges, payroll processing costs and credit card fraud incurred in handling such sums.

The government’s consultation document, published in May 2016, which has been broadly followed by the British Hospitality Association (BHA) Code of Practice for Tips and Service Charges, provides that establishments should: be transparent and clear that service charges are discretionary; disclose to customers how they deal with discretionary service charges and non-cash tips and that they are dealt with fairly; and how a service charge is broken down with regard to deductions and how much (if any) workers receive.

Marc Jones is an employment law specialist and a partner at Turbervilles Solicitors