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Tips and the National Minimum Wage

HMRC have won their case in the Court of Appeal as to the treatment of tips and service charges for bar and restaurant workers.

The court ruled in favour of HMRC in the National Minimum Wage (NMW) legislation case relating to tips, gratuities and discretionary service charges. The case concerned Annabel's restaurant and night club and others.

The ruling confirms that employers must pay their employees at least the NMW without taking into account tips, gratuities, service charges or cover charges, unless they are paid to employees through the employer's payroll.

The case means that Annabel's and others must now pay over £125,000 in arrears to their employees.

Annabel’s had operated a ‘tronc’ scheme which HMRC had argued did not count towards the necessary payment of the NMW. A ‘tronc’ scheme is sometimes used where restaurant or bar service charges are paid by the customer to the employer, but are then paid into a 'troncmaster's' bank account for distribution in accordance with a 'tronc' scheme agreed between the ‘troncmaster’ and employees.

The court decided that where a ‘tronc’ scheme is used the amounts distributed to workers are not paid by the employer and therefore could not be included in pay for NMW purposes.

Rt Hon Stephen Timms, Financial Secretary to the Treasury, said:

"The government's priority is to ensure that all workers are paid at least the national minimum wage. I am extremely 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."
 

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