Tips legislation comes into effect as row over costs continues

The controversial new law banning restaurant operators from using tips to top up minimum wage comes into effect today (October 1).

The legislation closes the loophole that has allowed restaurants to use service charges to subsidise national minimum wage and ensures that staff are paid salaries in full, meaning they will now attract national insurance on the whole amount.

It comes into effect on the same day that national minimum wage goes up from £5.73 an hour for workers aged 22 and over to £5.80.

Business Secretary Peter 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.”

The British Hospitality Association (BHA) claims the additional national insurance charges incurred will lead to extra costs and job cuts, costing the industry up to £130m - more than double the Government’s estimate of £60m

Peter Davies, senior manager at business advisory firm Vantis, agreed with the BHA and insisted the Government’s figure was “grossly underestimated”.

“In financial terms the only real winners out of this are the Government because it will be getting far more national insurance,” he told Caterersearch.

“The myth of the greedy restaurateur in it to make money, exploit staff and rip-off customers is exactly that – and many businesses will struggle to make the profits needed to carry this extra burden.”

The BHA has created a code of practice on how to distribute tips, in conjunction with the Department for Business.


BHA and BII lock horns over tipping reform >>

Using tips to make up minimum wage to be outlawed in October >>

BHA unveils its first code of practice on tipping >>

Government rejects job loss argument against tipping reform >>

Tragus accused of threatening staff over cash tips >>

For more news, analysis and comment on tips see our dedicated page >>

By Rosie Birkett

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