Tips & Gratuities 

The national press and British consumers continue to be much exercised with the issue of tips and whether businesses are treating staff fairly in the way they are distributed. Having a clear, ethical tips policy is clearly not only important to your staff but also to your customers, so putting one in place is important.

The Department of Business, Innovation and Skills (BIS) has produced a Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges, which outlines how to implement a tips policy.

Since 2009 it’s been illegal to use tips, gratuities, cover charges etc. to make up an employee’s minimum wage pay, i.e. staff must get minimum wage with any tips etc. added on afterwards in their pay packet.

Four Principles

The BIS code sets out four principles which businesses, such as pubs, should abide by:
• Businesses will clearly display on their premises prior to the point of purchase or choice their policy relating to mandatory and discretionary service charges, tips, gratuities and cover charges, and make this accessible.

• Businesses will have a process in place to deal with requests from customers about how and to whom all service charges, tips, gratuities and cover charges are distributed, and the level and purpose of deductions.

• Businesses should ensure that workers understand and are able to confidently explain the business’ policy on service charges, tips, gratuities and cover charges to customers, or know where to direct customers for further information, and without risk of detriment.

• All workers should be fully informed on the distribution and breakdown of service charges, tips, gratuities and cover charges and the level and purpose of any deductions. Businesses should seek to reach agreement with workers on any change of policy.

When, What and Where?

When? Businesses should ensure that information about service charges, tips, gratuities and cover charges is made available to consumers on the premises and before they make the decision to make any discretionary additional payment.

What? The information should cover:
• whether a charge is mandatory or discretionary

• whether an amount is deducted by the business to cover costs incurred in handling these charges (deductions could be credit card and banking charges, and/or payroll processing costs)

• whether cash tips and card tips are distributed differently

• how the remainder is shared between the business and the workers

Where? There are a variety of ways for the business to make the information easily available on the premises to consumers, for example:
• clear and easily visible written information available on door stickers or wall notices or on menus displayed outside the venue
• on the menu in the case of restaurants
• information on the bill presented to the customer
• information made available to customers in the bill folder in leaflet form or on the ‘tips’ tray

In addition, the code recommends businesses should ensure that workers can direct consumers to further information, for example a written statement setting out the business’ policy on service charges, tips, gratuities and cover charges. Businesses may wish to make further information available through their websites or on promotional material.

How To Word Your Tips Policy

Here’s an example of how you might articulate your business’ tips policy:

“We are committed to the Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges.

This pub adds a discretionary service charge to customers’ bills.

10% of any discretionary service charge or card tip which you choose to pay is retained by the business to cover the charges we incur in processing your payment, card fraud losses and administration costs in distributing sums to staff.

20% of the discretionary service charge or card tip is retained by the business [this includes deductions for breakages, till shortages and walk-outs] and 70% is shared between the staff.

All cash tips go to the staff.

The amount available for staff in the restaurant is shared out through a system controlled by a staff representative.”

Of course, this is just the type of policy which caused so much offence to consumers this year so perhaps the best policy would be:

“We are committed to the Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges

We do not add a service charge to your bill.

100% of the tips you leave are distributed amongst the staff according to their wishes.”

Keeping Your Staff Informed

The Code states that Businesses should ensure that workers understand and are able to confidently explain the business’ policy on service charges, tips, gratuities and cover charges to customers, or know where to direct customers for further information, and without risk of detriment.

All workers should be fully informed on the distribution and breakdown of service charges, tips, gratuities and cover charges and the level and purpose of any deductions. Business should seek to reach agreement with workers on any change of policy.

Businesses must comply with national minimum wage legislation including the 2009 amendment: this means that regardless of how they are paid no service charges, tips, gratuities or cover charges can be used to make up national minimum wage pay. Businesses must also ensure that they comply with current employment law more generally.

Businesses who comply with the Code should ensure their employees understand the policy relating to service charges, tips, gratuities and cover charges. This means that businesses should ensure that all workers:
• understand the process for the distribution of service charges, tips, gratuities and cover charges between the business and the workers, and between the workers themselves; for example, workers should be told if a tronc operates (a special pay arrangement used to distribute tips, gratuities and service charges) and who the tronc master is (the member of staff who looks after and distributes tips)
• are aware of the amount and purpose of any deductions from service charges, tips, gratuities or cover charges, and seek to reach agreement with workers on any policy change
• have access to a written statement setting out the business’ policies on service charges, tips, gratuities and cover charges which can be provided to consumers
• are aware of the level of deductions from tips, service charges and gratuities made to cover breakages, till shortages or customer walk-outs
• are aware of the business’ grievance procedure

Businesses should give information to workers in the form of a written statement, which should include:
• how tips are distributed and, if applicable, if this is done through a tronc
• if cash and card tips are treated differently
• the name of the tronc master if appropriate
• how much might be deducted for administration and what this covers
• any other deductions
• what happens during holidays, sick leave, parental leave and other forms of leave

Tax on Tips

Where the business collects and administers tips on behalf of employees they should be added to the pay earned from the business and taxed accordingly via PAYE.

Where tips are passed to workers without national insurance deductions, workers should be informed that this may have implications for entitlement to certain social security benefits and they should declare this taxable income.

For more information on how to administer a tronc click here

Some Good Advice

Normally I’d call this a Top Tip… punning aside, in my experience pub customers really don’t like compulsory service charges and much prefer to make their own mind up on how much (if any) tip is left. They also really don’t like the idea of the pub business making money on tips, even if you’ve got legitimate costs to absorb such as card processing fees/payroll costs. In my opinion it’s best to put 100% across to your staff and let them deal with distribution and paying their own tax.

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