Tipping is still causing uncertainty amongst diners according to a survey by AA Hotel and Hospitality Services. Over half are unsure whether to tip, and how much.  Many remain unclear about who gets the money, particularly when it comes to service charges added to the bill and non-cash tips.

There is currently a voluntary code of practice which urges operators to give customers information on how they distribute tips so that customers can make an informed choice about whether to leave a tip.  The Government also carried out a consultation exercise in 2016 on the issue of whether the current system is clear enough for consumers and workers or whether the voluntary code should be strengthened.  We are still waiting to find out whether the Government intends to go ahead with its proposals to legislate in this area.  In the meantime there are no rules on distribution of non-cash tips and service charges; however of the 75 restaurants surveyed by the AA, 81% said they would welcome clearer legislation on how tip money should be distributed and would also welcome legislation requiring restaurants to share tips with waiting staff.

In brief, cash tips belong to staff.  Some operators ask staff to pool cash tips but they cannot insist on this. Non-cash tips and discretionary service charges belong to the restaurant and unless stated in an employment contract, the business is not legally obliged to allocate a specific proportion of this income to staff. Deductions from service charges and non-cash tips to cover costs for administrative expenses can be legitimately made by a restaurant. This is a growing trend in a society where cash is used with decreasing frequency and as a result the rise of deductions made by operators to cover administration has attracted a lot of bad press. This has led to operators including the Casual Dining Group, Pizza Express and Azzurri scrapping such charges.

For more detail on the current regime, see our previous article.


Best practice:

  1. Be clear with staff about the distribution of services charges and tips and what may be deducted and for what purpose (this might include banking charges or payroll processing costs). To maintain good relations with staff it is sensible to consult with them over this;
  1. Have a clear written tip and service charge policy and communicate to staff through employment contracts, the staff handbook or other appropriate way;
  1. Clearly display your policy relating to mandatory and discretionary service charges and any deductions that you make so that customers are well informed. Have a process for dealing with customer enquiries and train staff on how to deal with any information requests that they receive;
  1. You should not make any deductions from an employee’s wages to cover administration charges or breakages without the prior written agreement of the employee. You will be in breach of their contract unless this right is already included in the employment contract.
  1. Gratuities and services charges paid to staff do not count towards statutory minimum pay levels. The National Living Wage (for over 25s) is currently £7.20 and the National Minimum Wage (21-24 year olds) is currently £6.95 per hour.
  1. Holiday pay should reflect a worker’s normal weekly pay. This is a very complex issue but tips may need to be taken into account when calculating weekly pay. In very basic terms, tips paid to an employee via payroll should be taken into account when calculating a week’s pay.  Whereas tips paid by a customer in cash to an employee or tips paid via a tronc system would not need be taken into account.
  1. Tax is payable on tips and employees must declare cash tips for income tax purposes. PAYE must be applied to all tips paid by you to an employee.

The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.