Service Charge UK Law: Can Employers Keep Tips?

Transparency is becoming the focus of standard business practice (gender wage gap, for example), and employers must be aware of their responsibilities regarding tips, gratuities, and service charges.

A good start is the government’s ‘Code of Best Practice’, guidance that is not mandatory for businesses to follow but is sure to put them in good stead for any UK service charge disputes.

The guide attempts to set out the four principles of the Code of Best Practice and highlight ways businesses can make information available to consumers and workers.

Traditionally, tips, gratuities, and service charges are paid in one of three ways:

• Cash is given at the end of a shift or from a customer.
• Part of the pay packet that you receive.
• Splitting tips among employees and pooling them is called a ‘Tronc’, and the person who then looks after it is called a ‘Troncmaster’.

Your employees should be fully informed of the distribution and breakdown of tips, gratuities and service charges, cover charges and the level and purpose of any deductions.

Additionally, your employees should be able to confidently explain the business’s tips and gratuities policy or know where to direct customers for more information without any risk of detriment.

Employers should give the information to their staff in the form of a written statement; this statement should include the following:

• Exactly how tips are distributed, including whether this is done through tronc payments and who the troncmaster is.
• If cash and card tips are treated differently.
• How much might be deducted for administration, and what does this cover?
• Any other potential deductions.
• What happens during holidays, sick leave, parental leave and other forms of leave?

Lastly, employers must comply with national minimum wage legislation. Therefore, regardless of how they are paid, the gratuities for employees cannot be used to make up national minimum wage pay.

The potential fallout of being accused of mishandling staff earnings could be catastrophic to a small business. Therefore, it is not just your staff who should be well aware of your gratuities for employees policy but also your customers.

Employers should display their employee tips policy before the point of purchase relating to mandatory and discretionary charges.

Businesses should also have a process for handling customer requests about how and to whom all tips for employees are distributed, as well as the level and purpose of deductions.

Whether or not you agree that the Labour leader is right in demanding that businesses should not receive a percentage of the tips, it’s hard to argue that a clear, concise and transparent policy on gratuity for employees is essential to protect you as an employer from a potential claim.