Businesses in the leisure sector should understand how tips should be distributed to staff, an expert has warned.
Oliver McCann, Employment & HR partner at regional law firm Napthens, warns that businesses are facing increased pressure from workers and customers to make sure their distribution of tips is favourable for staff.
These tips or gratuities are commonly given as a reward for good service in the hospitality, leisure and service sectors. Workers may receive them directly from a customer, within a pay packet, or pooled and shared between all staff.
A government consultation was launched into concerns around the treatment and transparency of tips, and in recent months a response called The Good Work Plan was unveiled, confirming new legislation will be introduced.
In the meantime, Oliver warns that it is vital to understand how they should be distributed – ideally through a written policy when a staff member is first employed.
He explained: “Legally, if a worker receives a tip directly it is theirs not the employers, and in theory should be declared to HMRC.
“Card payments are often different and become property of the employer, and there is no legal duty for them to hand them over to staff but in practice many do and indeed a business’ reputation could be damaged if they didn’t.
“It’s also important for employers to understand the relationship between tips and minimum wage – since 2009 employers have been prevented from using tips to meet their minimum wage obligations, so workers must receive them on top of their basic pay.
“Failure to comply can lead to an HMRC investigation and ultimately both financial and reputational damage.
“Likewise, workers have the right to complain if there has been an unlawful deduction from wages – it will only be allowed if it is required by law or permitted by a contract or by written consent.”
Oliver gave his top tips for employers:
- Be clear about how tips are distributed
- Do not use tips to make up national minimum wage
- Do not make unlawful deductions from wages
- Remember that you may need to pay whilst absent from work (i.e. holidays, sick leave, parental leave etc.) if the calculation is based on the employee’s average remuneration.