Tips on staying fair about gratuities

If you’re a service industry employer, be very clear about exactly what constitutes wages, advises Caroline Maher

IT was revealed recently that bar staff who had worked at TRNSMT, the three-day music festival held in Glasgow Green this summer, hadn’t been allowed to keep tips left by customers, and the temporary staffing provider who recruited the staff was instead donating the funds to two local charities.

While the revelations have been met with outrage from the workers involved, legally speaking, it is a grey area.

If an employer decides to withhold certain payments due under a contract such as salary or holiday pay, a worker has the right to raise a claim in the employment tribunal to recover these unpaid sums.

The Employment Rights Act 1996 prevents employers deducting sums from a worker’s salary in the absence of a legal right, such as income tax, or express agreement from the worker. Whether tips come within the definition of “wages” is ambiguous – and case law hasn’t provided a definitive answer.

Whether tips and gratuities amount to wages will depend upon the method by which they are paid to the worker and is influenced by the employer’s discretion as to how they are divided or how much is paid.

There is a particular lack of clarity on whether tips are classed as wages when they are pooled by the employer, as was the case at TRNSMT. If the way in which tips or gratuities are divided is entirely at the discretion of the employer, and the worker cannot show a contractual right to a certain percentage, then it is unlikely

they will amount to “wages” which are “properly payable” for the purposes of legislation. This means taking tips from staff isn’t necessarily an unlawful deduction from wages.

Last October, then Prime Minister Theresa May announced that her Government was going to implement new legislation to force employers to provide all tips to their workers whether these were paid on a card, pooled or paid directly to the worker.

This move followed a consultation which showed overwhelming public support for tips going directly to the worker, and a hostility to the idea of employers taking a cut of tips under the guise of an “administrative fee”.

These plans were reiterated in the Good Work Plan, published two months after the PM’S announcement. This report seeks to improve the position of workers seen as “vulnerable”, including agency workers, casual workers and those on zerohour contracts in the growing “gig economy”.

In this report there is a recognition that tips should be retained by workers, and it indicates once again that legislation will be introduced to ban employers from taking deductions from tips, let alone withholding them in full.

As a solicitor, my advice to business owners operating in the service industry would always be to communicate clearly with staff members and customers from the outset. If you intend to take a cut of, or indeed, the entirety of staff tips, firstly I’d say be aware that this practice could be a public relations disaster.

Secondly, you need to be sure this policy is explained to members of staff. Be upfront, or you run the risk of a disgruntled worker going to the press or taking to social media to slag off your business when they realise they won’t be taking home the tips they believe that they have earned. If the tip policy is communicated clear