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You are here: Experts > Business > International Law > UK/Scottish/Welsh Law > Laws on employers taking away tips
Expert: Bruce Fyfe - 10/27/2009
Question
Hi Bruce,
I'm not sure if you will have the answer to this but thought it would be worth asking. Recently my employer held back all employees tips during a week where £300 went missing from a safe where the change is kept (nothing to do with the till or takings). If it is of importance the tips are on a tronc scheme. I would like to know if it is LEGAL for my employer to hold these tips and if they are never distributed are they within there rights to do this?
If you don't know the answer do you know of anywhere i may be able to find it?
Thanks,
Dan
Answer
Daniel
Not criminal law, but ...
The relevant statutues are UK-wide and not restricted to Scotland): -
UNAUTHORISED DEDUCTION OF WAGES
The Employment Rights Act 1996 defines wages as any sums payable to a worker by his employer in connection with this employment. This will include things like bonus's, commission or holiday entitlements. You are entitled to payment of your wages in full. There are several items which are not included in the definition of wages. Examples would be: expenses, car mileage, pensions, allowances or gratuities in connection with retirement, redundancy payment and benefits in kind.
Statute does provide that your employer may make certain deductions from your wages in some circumstances. The circumstances in which these deductions can be made are as follows:
1. When your employer is authorised by statute.
This is for example when your employer is obliged to make deductions for income tax and National Insurance payments. Other examples of this would be if you have a County Court judgement against your name and the Court have ordered that you must pay directly from your earnings and there is an Attachment of Earnings Order. Also, in family proceedings there may be an Order for Maintenance Payments to be deducted from your wages at source by your employer. If you are having to pay any Court fines, your may be obliged to take deductions at source for payment of these fines.
2. You may have provisions in your contract which authorise your employer to make certain deductions from your contract.
There may be a written or implied term in your contract. Implied terms are discussed more on our termination page under Wrongful Dismissal. An implied term can exist if, for example, there was a common practice in relation to deduction of earnings but it is not expressly stated in your contract. If your employer wishes to rely on an implied term they must notify you in writing of the existence of the implied term and also explain to you the effect that the term will have in relation to deductions from your wages.
3. Previous agreement in writing.
It may be the case that you have previously agreed in writing with your employer that certain deductions may be made. If, for example, your employer has written to you and asked you to confirm your agreement to deductions and you have signed and responded to them consenting to their taking those deductions, they will be entitled to do so. The employer can only make deductions on this basis where your consent is in writing prior to the actual deduction being made. They cannot ask you to sign a letter consenting to it after they have made the deduction.
Even if it is in your contract or an agreement, you can't have more than 10% of the gross pay deducted (or demanded to be repaid) on any pay day. There is a clearly laid out procedure when a demand for repayment is made.
An employer may make a deduction from wages or demand payment from a worker on account of one or more cash shortages or stock deficiencies.
"Cash shortage" is defined as "a deficit arising in relation to amounts received in connection with retail transactions".
"Stock deficiency" is defined as "a stock deficiency arising in the course of retail transactions".
Therefore, if your till is short and you work as a shop assistant, your employer may make deductions from your wages.
That said, it is unlawful for an employer to deduct more than 10% from the gross wages of a retail worker on any one pay day.
Accordingly, where deductions can be made from a retail worker's wages to pay for shortages or stock deficiencies, the sums owed may be recovered in instalments but each instalment must be no more than 10% of the worker's gross wages on any one pay day.
However, the 10% limit does not apply to deductions from the final payment of wages.
With certain exceptions, a deduction of any size from the wages of a retail worker is unlawful if made more than 12 months after the cash shortage or stock deficiency to which it relates was (or ought reasonably to have been) established by the employer.
There are some further examples as to when employers can deduct money lawfully from your wages and these are as follows:
1. If they have overpaid your wages or any expenses, they are entitled to recoup those sums from you.
2. If the money is required by statutory authority, for example, you have underpaid tax to the Inland Revenue, your employer may deduct the relevant payment in this regard.
3. The deductions may be made in respect of strike action or industrial action if appropriate.
4. If the deduction has been made in satisfaction of a contractual obligation to pay any third parties.
5. If a Court or a Tribunal has ordered that you must pay your employer money they may take deductions from your wages in respect of that.
6. If there has been a mistake in computing the amount of wages to which you are entitled and there is effectively a deduction as not enough is paid to you, your employer has not breached the law. There is a difference between an employer taking a decision not to pay the relevant amount wages because they do not believe they are entitled to receive such under the current contract and a straightforward error in working out how much you are actually entitled to.
The above examples actually relate to the employer directly deducting sums from your wages before paying the balance out to you as your monthly salary. However the law does work in both ways and save for the circumstances set out above, the employer must not demand any sums of money from you. This prevents your employer from recovering sums of money from you on demand as opposed to actually deducting them from your salary.
In terms of actually recovering sums from your employer in respect of unlawful deductions you can apply to the Employment Tribunal and ask them to make a declaration that your employer has taken unauthorised deductions from your wages. The Tribunal can also order that the employer must repay the sums deducted.
You should read the Courts and Tribunals page and be careful to ensure that you meet the limitation date for issuing an Employment Tribunal of three months from the date that the deduction occurred. Or, if your claim is in respect of a payment that you have been forced to make to your employer which you think is unlawful the claim should be made within 3 months of that payment.
If your employer has been deducting money over a period of time then the three-month limitation period will run from the date of the last deduction that your employer made. You should however read the Courts and Tribunals page which would give you further information about limitation periods. Action may also be taken in the Court in respect of unlawful deductions from wages as a claim for the deductions or alternatively as a claim for breach of contract. This is a technical legal decision and is normally best taken with the assistance of a solicitor.
TIPS
Many people work within the hospitality industry in jobs such as bartending or waiting-on in restaurants and although their basic hourly wage is often set at minimum wage, they can often double their income and earn even more than double as a result of the tips or 'gratuities' they receive from customers.
Difference Between Tips and Service Charges
Tips are given voluntarily by customers to staff as a reward for the service they've received. This amount is discretionary here in the UK and not compulsory, unlike some other countries where, though also not compulsory, a certain percentage of the overall bill is usually added and left as a tip if the service has been good.
Tips are usually administered in one of two ways. The proprietor of the hotel, bar, pub or restaurant will either allow staff to collect tips individually or they'll be collected in what's known as a 'tronc'. This term derives from the French meaning 'collection box' often referred to in the UK as the 'tip jug'. In this scenario, the tips might have been intended for a specific individual but they will be required to place any tips in the tronc to be distributed amongst the staff at a later time. The tronc will be run by a member of staff (troncmaster) who is acting independently of the employer. If the company uses a tronc, it's for the troncmaster (who cannot be the employer or a director of the company) to stipulate how the tips are divided up. If the employer does not have any say on how the tips are shared out, then the tips are not subject to National Insurance (NI) contributions although they are still legally liable for tax which should be paid via the troncmaster if he/she is responsible for dividing and sharing the tips.
Service charges, on the other hand, are compulsory additions to the price charged for a service and, in the hospitality industry, they are usually between 10% and 15% of the total cost of the bill. These are collected by the employer and, if shared amongst the employees via the payroll, they are subject to both tax and NI.
HM Revenue & Customs Implications
Many employers and employees are often guilty of 'overlooking' tips and gratuities when it comes to tax and NI and employees in particular often mistakenly view tips as a 'cash in hand bonus' to their wages. However, it's important to state that ignorance is no escape from the law and mistakes relating to this area can be very costly to an employer if investigated by HMRC and found to be a contravention of the law.
The key things to remember are that income tax is due on all tips, no matter how they are given. If tips are offered in cash from the customer directly to the employee, then the employee should declare them for tax purposes. If the tips come by way of being added to a bill paid for by credit card, then it's the employer's duty to declare them for tax.
If any tronc has not been formally registered with the Inland Revenue, then the business is responsible for deducting the tax and if it doesn't want to be liable for NI contributions too, it must ensure that it has no influence on the way by which the tips are divided. This can be done by holding a written record signed by the staff outlining how they themselves have decided to divide the tips.
The HMRC has recently revised its guidelines on tips and troncs and more detailed information can be found on its website or by obtaining the leaflet E24.
http://www.hmrc.gov.uk/helpsheets/E24.pdf
http://www.independent.co.uk/news/uk/this-britain/tipping--the-unpalatable-truth...
> Tipping - the unpalatable truth
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> What happens to the money you leave as tips and service charges in restaurants? Is it a bonus for the staff? Does the management skim off the lion's share? Or do the waiters and waitresses take home the minimum wage, no matter how generous you are? In a special investigation, Simon Usborne reveals how you can make a difference
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> Tuesday, 15 July 2008
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> David Sandison
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> The tipping point
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> It's been a lovely evening. The waiter smiled and took care of your every need, without fussing over you too much or topping up your glass every two minutes. He didn't scowl when it became all too clear that the third member of your party was going to be rather more than just five minutes late. Without being told, he remembered that you said you'd prefer green beans to asparagus, and adjusted the order to suit. And he gave you plenty of time to digest your pudding and talk, rather than looming over the table offering coffee and liqueurs.
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> So, when the chip-and-pin machine arrives, you're feeling generous. You add an extra £5 tip on top of the 12.5 per cent "discretionary" service charge that's already been factored in.
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> You might expect both the service charge and your additional tip to wind up in your waiter's pocket at the end of the night. After all, fair's fair, right?
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> But can you be sure that's what will happen? And what would you think if you discovered that a hefty chunk of your tip is in fact winging its way into the business account of the company that owns the restaurant? Or that, even with your generous tip, your waiter is still only taking home little more than the minimum wage?
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> Increasingly, some of Britain's biggest restaurant chains are using loopholes in the byzantine system of laws and guidelines that govern the hospitality industry to concoct tipping and service-charge policies that most of us would consider simply unfair, if not scandalous.
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> Usually, it's the low-paid workers – the waiters – who are losing out. Diners are routinely kept in the dark about restaurants' policies, which are rarely the same from one establishment to the next – and waiters who break ranks to explain the rules to the tables they serve can face suspension, or even dismissal.
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> Now, a growing band of disgruntled waiters, confused customers and enraged union representatives is calling on the Government to close the loopholes and halt the growing problem of unfairness in tipping.
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> Today, The Independent joins forces with Unite, the union that represents workers in the hospitality industry, to get a better deal for waiters and customers. Dave Turnbull, Unite's regional industrial organiser, believes the majority of restaurant owners operate policies that are fundamentally unfair. "Our biggest concern is that there are so many opportunities for employers to pull a fast one on waiters and customers and yet still argue, rightly, that what they are doing is legal," he said. "It's got to stop."
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> On a corner site in Covent Garden sits one of London's most popular tourist destinations – Tuttons Brasserie, an attractive restaurant and bar with a red awning and tables laid out on the piazza. Waiting staff can be seen pounding in and out of the large French doors, each serving several tables, juggling trays of drinks and plates of food.
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> The staff work hard – this spot of prime real estate is a magnet for hungry shoppers and weary tourists – but what the hundreds of customers who come through the doors each day almost certainly don't realise is that, according to Unite, the waiters here earn a basic wage of zero. Yes, that's right – nothing.
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> Instead, Tuttons' owner, CG Restaurants, whose parent company, Liberty International PLC, last year made pre-tax profits of £129m, pays Tuttons waiters using only the "optional" 15 per cent service charge added to bills. "It's an abomination," says Turnbull of Unite, which has seen a contract showing the £0 basic wage. "How can you have a minimum wage and then say you can allow customers' tips to contribute towards that? It negates the value of the minimum wage, and the value of the tip."
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> CG Restaurants, which owns a second branch of Tuttons at the Bluewater shopping centre in Kent, declined to speak to The Independent about its tipping policy but issued a statement, saying: "Tuttons values its customers and staff in equal measure... our staff currently enjoy pay that exceeds National Minimum Wage by more than 30 per cent... we are confident that our employees are satisfied with their terms and conditions."
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> The Tuttons case may be extreme, but dozens of high-profile chains and restaurant groups, including Café Rouge, Strada, Carluccio's, Caffé Uno and Chez Gérard, pay a basic salary below the minimum wage (which is set at £5.52 per hour for workers aged 22 years and older), and use service charges and credit-card tips to make up the take-home pay to meet or exceed the minimum wage.
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> A loophole in the minimum wage legislation means that this is perfectly legal, while a flick through HM Revenue & Customs' document E24 makes it clear why the practice has become so widespread. It reads: "If customers have a genuine option as to whether to pay the service charges, it is accepted that they are not consideration (even if the amounts appear on the invoice) and therefore fall outside the scope of VAT." That means that, as long as your bill states that such charges are "discretionary" or "optional", the restaurant doesn't have to pay VAT on the money. All legal and above board, but it hardly seems right that money which the customers think they are leaving for good service is instead paying waiters' basic wages.
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> Other restaurants do pay the minimum wage or more, but take a hefty cut of service charges and tips left by credit card. The law gives little or no protection against this. If a service charge or tip is left by credit card, that money is legally the property of the restaurant, to do with as it sees fit. Cash tips are different. Unless a system, run by employees, is in place to pool and redistribute cash tips, the money left on tables is legally the property of the waiter.
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> Some restaurants take an "administration fee" out of the service charge. Martin Couchman, deputy chief executive of the British Hospitality Association, which represents restaurants, says there are "legitimate" costs involved in distributing service charges and credit-card tips to staff. "There'll be commission to pay to the credit-card company, costing in for credit-card fraud and money for the time-spend allocating the money," he says.
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> Restaurants slice off anything from 8 per cent upwards. But Georgetown Colonial Malaysian Restaurants, which has branches in Kenilworth, Nottingham, London, Leeds and Stratford-upon-Avon, takes 100 per cent of its 10 per cent service charge.
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> It's a practice Unite has called "immoral". But Kumar Muthalagappan, the founder and owner of Pearl Hotels and Restaurants Group, which owns Georgetown, is defiant. "Our waiters get a salary depending on how good or bad they are," he says. "Service charges are for service, but it doesn't mean it has to go to the waiter – it could go to the company's profit and loss accounts and the waiter is paid out of it in wages. If they think it is unfair they can work for companies that offer a fairer deal."
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> Asked if Georgetown's policy is misleading to customers, Muthalagappan added: "I think it's very clear for the customer. It's nothing to do with the customer how the company's profits are distributed – it's got nothing to do with anyone what happens to the service charge. The customer who doesn't like the scenario can go elsewhere."
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> Profit margins are so tight for restaurants that, when waiting staff try to tip the balance in their favour, some employers take a dim view.
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> A waiter at a leading chain of restaurants in London, which started ratcheting up the share of service charges it took for itself to 90 per cent, was suspended for telling customers where their money was going. He cannot be named because his disciplinary case is continuing. "The majority of customers I told were shocked and didn't pay the service charge," he says. "[The management] said I had tarnished the company's image and they suspended me."
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> In a similar case, Unite alleges that Nabil Guiguis, a 20-year-old former waiter at Pizza Express, was dismissed for talking to the media about the company practice of deducting an 8 per cent "administration charge" from tips left for waiters on customers' credit cards, a practice Pizza Express insists is legitimate and not designed to boost profits.
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> The suspended waiter says that unless something is done, it's not only waiters who will lose out. "If there was a system where all restaurants operated the same system, and customers knew where the money went, it would help a lot in keeping the turnover of staff low and retaining good waiters. And in the end the customer will benefit because service will be better."
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> Eating out is one of life's great pleasures. Does it have to leave a bad taste in the mouth?
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> The campaign starts here
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> Today, The Independent sets out three simple guidelines for fair treatment of waiting staff, asking that the Government introduces new legislation to end the widespread unfair tipping practices adopted by many of Britain's restaurants:
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> 1) All restaurants should operate a fair, clear and transparent policy for distributing service charges and gratuities to staff.
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> 2) All restaurants should display their policy on service charges and gratuities clearly on all menus.
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> 3) All waiting staff should be guaranteed a basic salary of at least the minimum wage, excluding gratuities.
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> All of us have the power to help bring about change – every time we eat out we get the opportunity to make a difference. Under current legislation, it is difficult to be entirely sure what will happen to any money you leave as a tip. To try to find out, first ask your waiter or waitress. Bear in mind, however, that many staff are told not to give out information on what happens to tips, or at least not to explain the policy in full. Unite, the union that represents workers in the hospitality industry, suggests that many staff face disciplinary proceedings if they reveal such details. If you are not satisfied by what you hear, ask to speak to a manager. If you are unhappy with a restaurant's policy, have the service charge removed from your bill and give cash directly to the people you wish to receive it. Inform the manager of what you have done.
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> We want to know how these issues affect you. Whether you own a nationwide chain of restaurants, manage a cafe or wait tables, tell us about your experiences, and how policies could be changed for the better. Visit www.independent.co.uk/tipping and have your say.
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> If you work for a restaurant that has an unfair tipping policy, you are not powerless. Every time someone asks about your restaurant's tipping policy, inform your manager – let them know this is an issue the public actually does care about.
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> Keep us informed – you can have your say on our website without publicly disclosing your identity.
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> We want your opinions on how tipping should work. Should service charges simply be scrapped, and staff paid higher basic wages? Are you happy to leave 10 per cent or 12.5 per cent – or more? Should "discretionary" charges be added automatically to bills? Is it socially acceptable to ask for a service charge to be removed from your bill? Should tips go straight to the waiter or waitress who served you, or should other restaurant staff – including the chefs – be given a cut? Visit www.independent.co.uk/tipping to have your say.
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