Tips And The National Minimum Wage

Following a consultation exercise involving representatives of employers and employees in the hotel, restaurant and related industries, the Government has announced that from 1 October 2009 it will be illegal for employers to use staff tips to bring pay up to the National Minimum Wage (NMW) levels.

The Government also intends to introduce a new industry code of best practice. Employers will have to make it clear how they distribute tips so that customers know where their money is going.

The new rules will increase the cost base of many businesses in the hospitality sector.

Meanwhile, the Mayfair nightclub Annabel’s has lost its court battle with HM Revenue and Customs (HMRC) over its ‘tronc’ system for tips.

A tronc is an arrangement for pooling and distributing tips, gratuities and/or service charges in the hotel and catering industry. The person who distributes the money is known as the troncmaster.

The nightclub used the tronc payments made to employees to satisfy the NMW Regulations. HMRC argued that the payments should not be taken into account when determining whether or not staff were being paid the NMW.

The Court of Appeal sided with the taxman. In its view, the tronc payments were not paid by the employer and did not count as part of the employees’ pay for the purposes of the NMW. Annabel’s was ordered to pay HMRC £7,636.56 plus legal costs and refused permission to appeal to the House of Lords.

The material contained in this article is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© , July 2009

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