Tips and Gratuities

Introduction

The Payment of Wages (Amendment) (Tips and Gratuities) Act, 2022 (“the Act”) became law on 20^th July 2022. The Act which requires a ministerial order to commence introduces new rules about how employers share tips, gratuities and service charges amongst employees. It also makes it illegal for employers to use tips and gratuities to make up basic wages.

The Act provides clarity on how voluntary tips and gratuities left for employees are to be treated and provides further protection for employees in relation to the payment of wages.

The key provisions of the Act require employers to:

• Not use tips to make up an employee’s basic wage and prohibits employers from deducting from an employee’s wage in respect of tips and gratuities made to an employee;
• Clearly display their policy on tips and gratuities for customers clarifying how they are distributed; and
• Not use the term ‘service charge’ or similar unless the gratuity goes directly to staff.

Treatment of Tips and Gratuities

The Act makes provision for the circumstances where an employer performs the same work as staff. Where this occurs, the employer may keep a share of electronic tips, but no more than an amount that is fair and reasonable in the circumstances.

Where an employer fails to adhere to specific obligations under the Act, they are liable under summary conviction to a class C fine up to a maximum of €2,500.

In light of the legislation, the hospitality industry should review policies in place to ensure that they are in compliance with the legislation including notices as required under the Act.

What is ‘Fair’ Distribution of Tips?

The Act sets out the process of deciding what is ‘fair’ distribution of tips and gratuities in the event of a dispute being referred under the Act to the Workplace Relations Commission (“WRC”). In the event of a claim to the WRC, an Adjudication Officer shall have regard to all of the factors or circumstances relevant to the case, as well as the following exhaustive list:

• the seniority or experience of the employee;
• the value of sales, income or revenue generated for the business by the employee;
• the proportion or number of hours worked by the employee during the pay period in which the tip or gratuity was made;
• whether the employee is on a full-time or part-time contract of employment;
• the role and influence of the employee in providing service to customers;
• whether the employee was consulted in relation to the manner of distribution; and
• whether there is an agreement, whether formal or informal, between the employer and the employee providing for the manner in which tips or gratuities are to be distributed.

Tips and Gratuities Statement

An employer is also obliged under the Act to provide a statement to their employees which outlines the total amount of tips or gratuities distributed by the employer for the period to which the statement relates, as well as the amount of tips and gratuities distributed to the employee to whom the statement is provided.

This statement has to be provided to the employees no later than 10 days from the date on which distribution of tips and gratuities is made. The employer is also obliged when issuing these statements to take reasonable steps to ensure that the statement and its contents remain confidential and this confidentiality extends to the agents of the employer and other employees.

In addition to the added notice of the statement itself, the Act also implies that should any employer wish to change the way in which tips and gratuities or mandatory charges are distributed amongst, they must first consult with their employees. Where any statement is provided which contains an error or omission, the statement is still regarded as complying with provisions of the Act so long as it can be proven that this error or omission was a clerical mistake or otherwise made accidentally in good faith.

Mandatory Payments vs the ‘Service Charge’ and the Prohibition on Certain Deductions

The Act differentiates between mandatory payments and service charges. A mandatory payment is a payment that a customer is required to pay in order to receive certain goods or services, while a service charge is a payment voluntarily made to or left for an employee where the customer intended or assumed that the payment would be kept for the employee.

The Act prohibits employers from making deductions from the tips or gratuities to be distributed to employees other than in cases where this deduction is required by law or to the extent that the deduction is fair and reasonable in order to meet costs directly arising from the paying of the tips and gratuities. This is broadly in line with Section 5 of the Payment of Wages Act 1991 which made a similar prohibition in relation to the paying of wages to employees.

Notices on Display

One of the most talked about aspects of the new Act surrounds the ‘tips and gratuities notice’ which must now be displayed by employers in their premises. This notice must state:

• whether or not tips or gratuities are distributed amongst employees;
• where tips and gratuities are so distributed to, the manner in which they are distributed and the amounts so distributed; and
• whether mandatory charges or any portion of them, are distributed to, the manner in which they are distributed and the amounts so distributed.

Conclusion

In light of the legislation, the hospitality industry should review policies in place to ensure that they are in compliance with the legislation, including notices as required under the Act.