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New consultation: Treatment of tips, gratuities, cover and service charges

Employers and employees are invited to respond to a government consultation on treatment of tips, gratuities, and cover and service charges.

Legal Alert

This update was published in Legal Alert - June 2016

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

There are few rules governing how tips, gratuities, cover or service charges for staff should be dealt with. The existing rules include:

  • Employers cannot count tips and gratuities as part of an employee's remuneration when calculating whether they are paying their workers the national minimum or living wage
  • Any tips, etc, paid direct to staff by consumers should be declared for income tax purposes
  • Discretionary payments made by consumers to employers (for example, by adding a tip to a bank card payment), if passed on to workers, must be made via the payroll, and the usual deductions made

However, it is at the employer's discretion whether it passes on all or any discretionary payments made – for example, as service charges added to payments - to its workers. Many employers ignore (or are unaware of) a 2009 voluntary code of practice giving guidance on how to deal with tips, gratuities, cover and service charges.

The Government has therefore issued a consultation Government consultation on tipping, gratuities, cover and service charges, May 2016 into how such payments should be treated, and whether new legislation is required.

The consultation closes on 27 June 2016.

Operative date

  • Now

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Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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