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What are the best practices for tips, gratuities, and service charges?

As a business owner, it is important to ensure you operate with transparency for your customers and your staff. This is particularly true in the service industries, where tipping and service charges are commonplace.

Since 2009, it has been illegal to use tips or service charges to make up national minimum wage pay. Instead, the tips that workers receive should be on top of their base rate of pay.

Considering this, what other best practices should be in place?

The Code of Best Practice:

The National Minimum Wage: Code of best practice on service charges, tips, gratuities and cover charges lays out recommended guidelines for businesses in the service industry.

It is most applicable to:

However, it also applies to any company handling tips and service charges.

Whilst businesses can handle the above in any way they choose, following the Code of Best Practice allows for legal protection should anything go awry.

Transparency for consumers:

As part of the Code of Best Practice, businesses are expected to display their policy on tips and service charges before the point of purchase. This should be in a clear, easily accessible way to ensure customers know exactly where their money is going.

This should include:

Businesses are also expected to have a process in place if customers are to ask for details about the service charges and tips. This should include who they go to, how they are distributed, and what deductions may take place.

Transparency for staff:

For staff, they should know clearly and confidently the business policies on tipping and service charges. This includes being able to explain the policy to customers and direct them to the displayed notice.

Workers should also be fully informed about the distribution of tips for their own finances, including how they are paid.

Businesses are required to provide this information in a written statement for their staff members. It should include:

It is also important to inform employees whether National Insurance is paid on their tips, as this may affect their tax obligations or entitlement to social security benefits.

Having a policy in place for tips and service charges protects your business, staff, and customers.

If you need any help or advice with payrolls or service charges, get in touch with our experts today.


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