National Minimum Wage
On 5th May 2009, Peter Mandelson signed off the Final Impact Assessment to amend the National Minimum Wage (NMW). This is further to the Court ruling last year which sided with HM Revenue & Customs in the view that tips paid via Troncmasters do not count towards NMW.
The NMW forms part of the government strategy to provide “fair standards in the workplace ”. Since the NMW came into force in 1999 to create “a level playing field for employers in the payment of wages and an essential safety net for vulnerable and low paid workers”, it has been legal for the use of service charges, tips, gratuities and cover charges to count towards the NMW when paid via payroll.
In an effort to ensure that tipping practices are made fairer and ensure that workers receive a fair wage whether they receive tips or not and “in line with public expectation” the Government believes “the time is right” to ensure that in future tips can no longer be counted as part of NMW.
The revised policy is set to ensure access to NMW in basic pay for low paid workers and “create an equitable wage floor for all workers irrespective if they are paid tips as part of their wage or not”.
So what are we talking about?
- Service charges that are added to the customer’s bill as a mandatory charge.
- Tips and gratuities – “spontaneous payments” from a customer either as cash (left on a table, given directly to an individual or placed in a box for collecting tips) or offered as part of a cheque, credit or debit card payment, that are discretionary.
- Cover charges that are a mandatory fixed amount that pays for entertainment or others services.
The Impact Assessment looked at two approaches:
- All tips, service charges, gratuities and covers charges (whether discretionary or mandatory) are excluded from counting towards the NMW
- Only discretionary tips and gratuities, and mandatory and discretionary services charges are excluded from counting towards the NMW.
Compared with a benchmark of “do nothing”, in November 2008 the Government undertook the consultation and as a result of the responses decide to proceed with option 1 “as it would create less ambiguity”.
Employers and businesses support the concept of a fairer starting point for all workers in their base pay, and that all workers should receive the national minimum wage (which is currently set at £5.73 per hour) before any tips are added. This was very much welcomed by Trade unions and worker representatives in clarifying employees’ terms and conditions.
Having taken into account all the responses from the consultation exercise, and based on evidence acquired during the process by various means, the government is to proceed with changing NMW regulations to exclude the use of all service charges, tips, gratuities and cover charges in payment of the NMW. The change is to come into effect on 1st October 2009 to align with other legislation.
On an ongoing basis, the Low Pay Commission will assess the use of tips as part of their NMW published reporting from 2010.
We have not opposed the introduction of legislation .... but we are concerned that the Government has decided to introduce legislation in October this year rather than wait until the recession subsides... this is not the time to introduce a measure that will increase the industry’s wage bill so significantlyBob Cotton of the British Hospitality Association (BHA)