Employers banned from using tips as wages

Employers in the hospitality industry will be banned from using tips to bring employees’ pay up to the national minimum wage from 1 October.

Following a government consultation, all service charges, tips, gratuities and cover charges will be excluded from payment towards the minimum wage when the new law comes into effect later this year. Under current rules, employers can collect all gratuities paid to employees and distribute these through payroll in order to count towards their wages.

Some employers in the sector have expressed concerns that the increase in salary costs following with the change in laws would put further pressure on organisations at a time when many are struggling.†

But the government response to the consultation stated: “While our impact assessment estimates that the cost to business will be annually in the region of £92.5 million, made up of higher labour costs and national insurance contributions, this is only 0.50% of the overall labour costs in the hotel and restaurant sector.

“The change will create a level playing field for companies, the majority of whom do not currently use tips to follow up the minimum wage.”

Derek Simpson, joint general secretary at union Unite, said: “The government is to be congratulated for doing the right thing by low-waged waiting staff and moving to close the loophole which has allowed greedy employers to use tips to pay staff the minimum wage.

“Hard-working waiting staff will be delighted to learn that employers can no longer line their pockets with the money that customers intended to go to workers. However, there remains a need for a fully transparent tipping system where 100% of tips go to staff.”

Read how we covered the consultation back in February 2009.