Tips don’t count towards minimum wage, court rules

The High Court today ruled to support National Minimum Wage legislation on tips, siding with HM Revenue & Customs (HMRC) against Annabel's club/restaurant.

The ruling means employers are required to pay staff at least the minimum wage regardless of any tips, gratuities, service or cover charges, as long as tips are not paid through the employer's payroll.

"We are very pleased that the court has recognised HMRC's commitment to ensuring that tips are correctly and fairly distributed to the people who earn them. This is good news for bar and restaurant workers across the UK," said Denise Gaston of HMRC. "Our priority is to ensure that all workers are paid at least the National Minimum Wage."

HMRC argued that payment via a 'tronc' (an independent tips distribution scheme) does not count towards the minimum wage.

The judge determined that where the customer pays the employer for service, but the money is then paid into a 'troncmaster's' bank account for distribution, the sums are not "paid by the employer" for the purposes of being included in any National Minimum Wage calculation.

"As society moves away from cash, increasingly paying with credit cards into the employer's bank account, it makes little sense to have all this additional moving of funds," Martin Couchman, deputy chief executive of the British Hospitality Association told Personnel Today. "It means the whole business of communicating this information is much more efficient."

HMRC lost an Employment Tribunal appeal case against Annabel's in October last year. Annabel's now has 14 days to seek permission to appeal.