‘Tips aren’t wages’ decision will impact on hospitality industry, says PwC

An Employment Appeals Tribunal (EAT) has ruled that restaurants can’t rely on distributing tips to staff as contributing to the national minimum wage.

A recent EAT ruled that London’s Annabel’s restaurant and nightclub have to pay their staff at least the minimum wage and can’t rely on tips to make up the difference.

Tip distribution schemes, known as ‘troncs’ rely on tips, gratuities and voluntary service charges being paid to a troncmaster - who then allocates and makes payments to employees.

The EAT said that because troncs are not paid by the employer they cannot count toward the national minimum wage. The ruling means that employers have to pay their staff at least the minimum wage regardless of such amounts.

Stephen Curragh from PricewaterhouseCoopers LLP in Belfast says that, if upheld, this ruling could prove costly and complex for some employers in the North’s growing hospitality industry:

“If there is no appeal or an appeal is lost, the ruling will call time on the practice of making up a portion of bar and restaurant staff wages from tips or service charges and where such payments are first made to a troncmaster and then onward to employees. 

“This could have implications for many employers in terms of base pay increases, loss of national insurance contribution savings and administration.”

However, Stephen Curragh says that restaurant or bar employers who receive service charges directly from customers and pay them out through their own payroll on behalf of the troncmaster may not be covered by the ruling:

“Arrangements where service charges are paid directly by employers to their employees are clearly distinguishable from the Annabel's case and it would seem that this form of tronc arrangement should be unaffected.

“However, until guidance on the implications and application of this ruling is issued, there is bound to be considerable uncertainty in the restaurant and hotel industries.

“There will also be a concern that the ruling could put affected employers at a financial disadvantage if no steps are taken to pursue alternative arrangements. 

The industry needs clear rules quickly to ensure a level playing field.” 

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Email: John Compton
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