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Tips won’t count towards wage

15 July 2009

Using tips to make employee’s pay up to the national minimum wage (NMW)  levels is to be outlawed from October this year.

The government’s decision followed consultation on the use of tips, gratuities, service charges and cover charges in relation to the NMW.
Under current regulations, if the employer collects service charges, tips, gratuities and cover charges in what’s known as a ‘tronc’ (from the French word tronc meaning ‘collection box’) and pays them to staff through the payroll, they count towards his liability to pay the NMW. If they are not paid via the payroll, they do not count towards the NMW.

After October, in a move towards simplicity and transparency, the government has decided to prevent all of these different forms of tip from counting towards the NMW. The change is intended to be fairer for customers, most of whom leave a tip, unaware that it will be contributing to the minimum wage. It will also create a level playing field for the majority of businesses that do not use tips in this way.

The treatment of tips as wages was considered in a case brought by HMRC against Annabel’s, the well-known Mayfair restaurant and nightclub. The Court of Appeal held that tips collected by the employer and passed to a ‘troncmaster’ to be distributed among workers according to the ‘tronc’ system could not be counted towards the minimum wage paid to staff. It is believed that Annabel’s and its associated companies involved were forced to pay over £125,000 in arrears to their workers.


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