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Tipping the Balance

During what appears to be a highly competitive Conservative Party Conference in Birmingham, Prime Minister Theresa May has announced that new legislation will be introduced to ensure that tips and service charges left for workers in the hospitality industry are distributed in a fair manner.

This follows allegations that well-known High Street names have been inappropriately redistributing portions of tips and service charges paid by customers by credit and debit cards for various purposes, including to avoid having to make pay rises and also to boost their own profits.

For legal purposes, tips, service charges and gratuities do not form part of a worker’s National Minimum Wage.  Despite this and depending on the circumstances, they may be treated as wages, for instance where a worker makes a claim for unlawful deductions from wages. 

However, in October 2009, the-then Department for Business, Innovation & Skills (now the Department for Business, Energy & Industrial Strategy) introduced, with input from interested parties including UKHospitality (at that time the British Hospitality Association) and Unite the Union, a Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges.  This Code of Best Practice makes it clear that:-

“All workers should be fully informed on the distribution and breakdown of service charges, tips, gratuities and cover charges and the level and purpose of any deductions.  Business[es*] should seek to reach agreement with workers on any change of policy.”

The Code makes it clear that, although businesses may conceivably make deductions from tips and service charges that workers receive, they should clearly communicate their proposals to workers and attempt to obtain an agreement from workers before implementing any changes to how tips and service charges are distributed.

Whilst firm legislation may assist in enforcing these rules against businesses, particularly in relation to the point about communicating and negotiating with workers before implementing policies, the commercial realities of the situation should also be noted.  It is likely that the administrative costs of collecting and distributing tips and service charges will be unavoidable and possibly also beyond the control of the business, particularly when tips and service charges are paid by card or online.

Therefore, it may be worth exploring a means of formally enforcing breaches of the Code, rather than focusing on introducing further rules and regulations whose language could distort its meaning.  This is a concern that UKHospitality, one of the original supporters of the Code, has previously expressed.

*Our emphasis added

This article is not a substitute for legal advice on specific facts and circumstances. It is designed as a free update on the law at the time of publishing. Knight Polson Limited trading as QualitySolicitors Knight Polson accepts no responsibility for reliance on this article and recommends that you seek independent legal advice on your specific circumstances prior to taking any steps.

If you have any questions or would like to discuss the contents of the above article, please do not hesitate to contact us on knightpolson@qualitysolicitors.com or 023 8064 4822.

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