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Employment Law Services Ltd

Tips and the Minimum Wage

1st June 2008
Publicity has recently been given to the practice of some businesses (usually restaurants) counting staff tips towards their wages, to top up low wages to a figure over the National Minimum Wage. The Employment Appeals Tribunal has recently examined this practice in a case called Commissioners for Her Majesty’s Revenue and Customs v Annabel’s.

In this case the employer had the practice of requiring a person to collect up all the tips for the staff and then distributing them on a weekly basis. There were two payrolls, one covering the basic pay from the employer (paying under the National Minimum Wage), and a second dealing with the tips. The EAT noted that once the tips were collected it had no power to alter the basis of distribution of the tips among the staff, and so the tips could not count as pay from the employer under the National Minimum Wage requirements.

The effect of this case is that employers cannot run the two schemes in such a way that allows them to make the basic pay from the employer less than the Minimum Wage. However, it does NOT stop them from rolling all the tips straight into the salary through a single weekly payroll. So, while it closes one “loophole” over the National Minimum Wage and the use of tips, it does NOT completely stop tips being counted towards the national Minimum Wage in all respects. If you need any advice on this matter please contact us.
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