Law to ban tips as contributions towards minimum wage

31 July 2008

Tips and service charges will no longer count towards payment of the minimum wage under new laws announced by the government.

The rules, which are due to come into effect next year, will prevent employers from using tips and gratuities to top up employees' wages so that they meet the hourly rate laid down by the minimum wage.

Announcing the new proposals, John Hutton, the Business Secretary, said that the process of tipping needs to be made more transparent.

Mr Hutton commented: "Hundreds of thousands of people in the UK have jobs in sectors where tipping is commonplace. When people leave a tip, in a restaurant or elsewhere, they expect it to go to service staff and as consumers, we've got a right to know if that actually happens.

"This is an issue of fairness and common sense and it's one many people clearly care a lot about."

Mr Hutton argued that the new regulations will protect low paid workers: "Under the current law, all workers are already entitled to receive the minimum wage. The changes we're proposing will mean that in the future, tips cannot count towards payment of the minimum wage.

"We also want to encourage employers to make it clear how tips are distributed so that customers know where their money is going and whether or not the establishment operates a fair tipping policy."

Currently, where tips and gratuities are given directly to workers by customers and are retained by the workers without any other party being involved, they cannot count towards the payment of the minimum wage. Where there is evidence that cover charges, service charges, tips or gratuities are paid by the employer to the worker via the payroll then the tip can count towards national minimum wage pay.

The national minimum wage for adult workers is set to increase from £5.52 to £5.73 as from October 2008, with the rate for 18-21 year olds increasing from £4.60 to £4.77, and the rate for 16 and 17 year olds going up from £3.40 to £3.53.