Tax & Accounting News

Tips And The Minimum Wage

26/11/2009

As of 1 October this year, tips have no longer been allowed to count towards the National Minimum Wage (NMW). This represented a change from the previous rules, where such payments could count in certain circumstances.

Employers must, therefore, ensure they are paying all employees at least the NMW, regardless of any tips, gratuities, cover charges or service charges. The new NMW rate, also since 1 October, is £5.80 per hour for adults aged 22 and over, £4.83 for those aged 18 to 21, and £3.57 for 17-year-olds.

Regarding the tax treatment of tips and other such payments, cash tips are liable for income tax (via self-assessment), while cash or credit card tips pooled through a troncmaster and discretionary service charges are also liable, although the employer may in practice process these payments through the payroll anyway, as are mandatory service charges. Workers will not normally have to pay National Insurance on tips, unless their employer is involved in the allocation, although mandatory service charges are liable.

For more information on the NMW, or how this change impacts on your employees, please contact us.

Internet links: Business Link Website and Employer Bulletin