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Quentin Colborn

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Colborn’s Corner: Want to leave a tip?

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October 1 sees a few changes in employment law. Firstly, the National Minimum Wage (NMW) is increased and secondly,  changes to the ways tips are treated in terms of their role in remuneration. This month in Colborn’s Corner Quentin looks at the the role of NMW and questions how far legislation should impact on how we treat those who provide us with service.
 
As part of a well-trumpeted campaign the NMW increases tomorrow. For those who are not aware the increases are:

•    The adult National Minimum Wage (for those aged 22 or more) increases from £5.73 per hour to £5.80;
•    For 18-21 year olds the NMW increases from £4.77 to £4.83; and
•    For 16-17 year olds the NMW increases from £3.53 to £3.57.

As HR professionals we have no option but to abide with the law, but what do we think of the principle of government interfering in the relationship between employee and employer? Of course it happens in other aspects of employment matters, so why not pay?

It is interesting that one of the topics we are currently seeing in the round of party conferences is the question of bankers’ bonuses. To some the regime of bonuses within the financial sector was one of the key factors that led to the meltdown within banks and associated sectors. The argument goes that bankers were rewarded with high bonuses that recognised short terms gains with no regard to the long term. When the system came crashing down we all had to pay. Therefore, governments have the right, if not the obligation, to take action to prevent the root cause of the problem occurring again. There seems something of an irony that we have government intervention at both ends of the pay scales!   

When it comes to the issue of tips there are some interesting changes afoot – but perhaps not as radical as Peter Mandleson has suggested. There are three methods of routing tips into the pockets of service staff – and this is typically, but not exclusively, within restaurants. Firstly, cash that is left on the table. If this goes directly into the employee’s pocket the employer is not aware of the amount received and so cannot be taken into account for NMW purposes. There is a tax liability on the individual employee and HMRC will make their own assessments as to likely levels of tips and charge tax accordingly. My understanding is that these notional tips were never used as part of the wage makeup and the new legislation will not affect them. Similarly, there is an unusual system of tipping (sometimes called ‘tronc’) in some establishments whereby restaurant or bar service charges (tips) are paid by the customer to the employer, but are then paid into a troncmaster’s bank account for distribution by him/her in accordance with a tronc scheme agreed between the troncmaster and employees. The Court of Appeal ruled earlier this year that such arrangements are outside of the NMW provisions and so minimum wages must be paid separately.

However it is in the third category of tips that the changes will make a difference. Suppose you go into a restaurant and there is a 10% service charge. While that charge is due to be passed to the employees, in the past it has contributed towards the wages for NMW purposes. This is now illegal. Business Secretary Lord Mandelson said:

“When I leave a tip I don’t expect it to be used to make up the minimum wage. I want it to go to the person who has served me as a thank you for their service. This is a basic issue of fairness. Tips are meant as a bonus – not a tool to boost pay to the basic minimum.”

There will doubtless be cries of woe from employers in the sector, but have we got away from the original concept of tips being paid to recognise service above the norm? In any event, surely service charges are a different league anyway. To my mind I would not expect to go into Marks and Spencer’s and anticipate seeing an item on the bill with a separate charge for someone wrapping up my goods and processing payment. So why should it happen in restaurants?

Will this change make big differences within the hospitality sector? Will jobs be lost as result? Should this change have happened a long time ago? Will it alter what you do when you go out for a meal? Let us have your views.
 

Quentin Colborn is an independent HR consultant based in Essex who advises management teams on operational and strategic HR issues. Quentin can be contacted on 01376 571360 or via his website at www.qcpeoplemanagement.co.uk
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Thank you.