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South West firm in trouble for Tips Deductions

October 29, 2019

Tips deductions – a South West, Bristol based restaurant was recently caught underpaying their staff, through unlawfully taking their tips. It appears there was an arbitrary 3% of the bill of every table applied as a tip that had to be pooled regardless of the amount that the customers actually left meaning that staff had to sometimes pay back money out of their wages. Which is in effect an unlawful deduction, possibly to below national minimum wage.

Over the years there have been countless cases similar, big restaurant chains such as Pizza Express, Weatherspoons and TGI Fridays have been caught, with a range of allegations, some that management take a percentage of the tips.

The payment of tips, gratuities, cover and service charges is prevalent in a number of sectors, specifically hospitality, leisure and the restaurant business.

Know the Law: Tips deductions & Gratuities

  • UK employment law states that payments paid by the employer to the worker representing amounts paid by customers by way of a service charge, tip, gratuity or cover charge cannot be used to make up the national minimum wage.
  • Put simply, tips should be a voluntary contribution made by the customer, to the employee in appreciation of good service – management should not intervene in this process or exercise any level of control over the tips.
  • If an employee’s basic pay is at the national minimum wage level, any tips paid through the employer’s payroll must be paid in addition to the employee’s basic pay.
  • If you’re unsure, seek expert help either from HR Consultants or your Accountant – avoid unnecessary cases where you are deemed lawful, the PR impact is vast and the teams morale can be hugely impacted too.

How to avoid this happening

  • The main way to ensure this doesn’t happen to your business, is to ensure that in employees’ contracts it is clear what their hourly rate for their role is, as that cannot then be deviated from.
  • Transparency is also key and should be a focus for employers – ensuring your employees all know your process regarding tips and gratuities and are aware of their responsibilities, as an employee.
  • The Government have issued a ‘Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges’ – this is guidance for businesses and if you follow their four principles, it will hopefully avoid any potential wage disputes.

Only last summer, TGI Fridays staff went on strike over kitchen workers being offered a share in tips, in lieu of a pay review/rise – there have been years of scams surrounding employee tips and gratuities not being rightfully paid to the right people, and consumers sometimes over paying for their goods.

In very recent news the government has announced it will take steps to pass a bill that requires employers to pass on all tips to workers in full, making it a fairer and more transparent process and cracking down on poor tipping practices that some firms are adopting.  We will keep you updated with any official legislative changes and if this bill is voted on and passed… watch this space!

As always, we’d love to hear your thoughts and if your business is impacted by tips and gratuities. Please get in touch with us directly: Rise HR Ltd, call us on 0844 854 6704 or email us at: hello@risehr.co.uk.