The Employment Appeal Tribunal has given an important judgment about tips, service charges and the national minimum wage: it has ruled that restaurant employers who make inadequate wages up to the minimum wage level by redistributing service charges and tips to waiting staff via a “tronc” system act unlawfully.
Essentially a tronc works by tips and service charges being collected and then held on trust by a member of staff, who then distributes it to colleagues. Many employers count those sums towards the minimum wage, but HMRC believed that was unlawful (HMRC being the enforcement authority for the minimum wage – none of this has anything to do with tax).
Initially HMRC lost in the Employment Tribunal – the ET thought the employer effectively controlled the tronc, so that the tronc system satisfies section 1(1) of the National Minimum Wage Act 1998:
A person who qualifies for the national minimum wage shall be remunerated by his employer in respect of his work in any pay reference period at a rate which is not less than the national minimum wage.
The key words being, of course, “by his employer”. The EAT has disagreed and reversed the judgment: it sees the money as being owned and distributed by the troncmaster; so a person paid in this way is, to the extent of that payment, not “remunerated by his employer”. In other words, the remuneration he does get from the employer is less than the minimum wage.
I’m pleased about this – it’s high time the restaurant and bar business entered the real world (and yes, I am happy to pay more for my scoff). I’m only sorry the legal position as set out by the EAT may allow for the possibility of redesigning the tronc system so that it complies. I won’t explain how: I don’t want to help employers like Annabel’s. Further legislation may eventually be needed to take this tronc nonsense off the menu once and for all.
If I had John Hutton’s job (he’s the minister in charge of this) I’d want to outlaw service charges too, as they have done in France.
Although I can never see it happening, it would be good to end tipping once and for all. Some countries manage perfectly well without it. Japan is the most obvious example, a service-orientated country if there ever was one. With very, very few exceptions, Japanese workers would be insulted to be offered a tip for doing what is regarded as their job. In Scandinavia I think it’s still the case that there is a standard service charge added to restaurant bills, and no tipping. On the other hand, in the dining car of a train in Italy a few years ago, I asked the waiter whether the bill included service , to which he replied ‘ Service, yes, but tip, no.’
Excellent stuff. This made my day.