HM Insights

Top tips on tipping

Tipping is a situation that everyone finds themselves dealing with, but it’s not always clear what ‘rules’ apply, and what the legal position might be. Here, Dawn Robertson looks at the tips and gratuities both from the point of view of the business receiving the tips and from the perspective of the customer giving the tip.

Tipping Employment Law Tip Gratuity Service Charge Legal

What is the legal position on tips – do they belong to the business or to the staff receiving them?

Unhelpfully there isn’t really a legal position on tips and gratuities. It’s clear that a business cannot use tips to make an employee’s wages up to the national minimum wage. However, beyond that, it really depends on what the business’s policy on tips and gratuities is. There is however a general expectation that a business passes on at least some of the tips to its staff.

So I am a customer and I read on the menu that there is a service charge for parties of six or more, does the service charge go to the business?

This will depend on the business’s policy and it is really for the business to decide.

Most people these days pay by card and add a tip that way: does it make any difference doing it this way rather than by cash?

Well, yes, this can make a difference – with cash tips going to staff and credit card tips going to the business – but again only on the basis of what is said in the business’s policy, if there is one. ‘Best practice’ advice is for the business to have a transparent policy both for customers and staff so that any decision to tip is made in full knowledge of where the tip is going, particularly whether it is going to reach the waiting and kitchen staff, for example.

So why is following best practice so important?

More than ever customers are demanding transparency; they want to know that the waiter they tip is one who is rewarded. Without a clear policy do you really know what happens to the money you give? And equally, those employed should have a fair indication of what they will receive.

So you mentioned a policy – what are you really getting at?

A visible and understandable procedure that a restaurant follows in relation to tips and gratuities. From a customer’s point of view, a note of this policy should be found on either the restaurant’s menu or clearly displayed as a wall sign. The customer should have the means to know and understand the policy in place before they come to pay the bill. However, this is not necessarily the best method for staff. Employees should be informed of the policy personally whether that is through a meeting with management or a staff handout. They need to be equipped, not just to answer their own questions but the questions of customers too.

You mentioned that the policy should be understandable – what do you suggest?

Well, because there are no set rules, only guidelines on what the policy needs to say. One would ask what does (1) the customer and (2) the employee want to know?

There are four key questions.

  1. Is there a mandatory or discretionary charge?

     This question is really customer focused. In simple terms, do I or do I not need to pay a tip? Wording on the menu to the effect of ‘We do not add a service charge to your bill’ may suffice.
  2. Does the business deduct an amount to cover business costs?

     This is of interest to both customers and employees alike. If this is something management wish to implement then this should be clearly communicated to both groups. Again wording on the menu or in a staff handout to the effect of; ‘10% of the tip you choose to leave will be retained to cover business costs’ may suffice. However, it may be that the business will want to go further and give an indication of what the retained percentage is for, for example charges incurred processing payment and card fraud loss. Let customers and those working for you know what the money is being used for.
  3. Are card tips and cash tips are distributed differently?

     Again this is of interest to both customers and employees. If it is the intention of management that card tips are apportioned between staff and business costs but all cash tips are to go to the staff then say that! Make it clear.
  4. What happens to the remainder?

     In simple terms, if wording to the effect of ‘10% of the tip you choose to leave will be retained to cover business costs’ is used, make sure you say what happens to the remaining 90%. If it helps use illustrative diagrams such as pie charts to show how tips are apportioned. Each group should have little doubt.

So if from what you are saying restaurants and similar establishments have discretion on what to include in their policy – why should they write it as you have recommended?

Given the current economic climate restaurants and similar establishments should be doing what they can to attract and retain customers. Transparency through the use of a clear policy such as this is an easy way of increasing customer confidence. If customers know where they stand they are more likely to return.

Equally, it is an excellent way of showing a responsible level of employee care which contributes to a positive employee brand. By operating a clear policy where employees know exactly what they are entitled to is a great step towards securing the best calibre of employee.

So really, a clear policy on tips and gratuities makes practical and commercial sense.

[The Department for Business Innovation & Skills has issued guidance and a code of best practice on tips and gratuities which is a useful starting point for any employer – this can be accessed here]

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If you would like to discuss any of the issues raised in this article, please get in touch.