Employers to be banned from using tips to make up contractual pay

Employers are to be prohibited from using tips to “make up” contractual rates of pay, and all electronic tips received must be distributed “fairly and in a transparent way” under a new law published on Monday.

The Payment of Wages (Amendment) Bill will require employers to clearly display their policy on how tips, gratuities and service charges are distributed.

This obligation will not affect businesses where tips are managed by employees themselves. All employees must be consulted on the policy that is introduced.

An employer may take into account certain factors when deciding how to distribute tips, including the seniority or experience of an employee, value of sales generated by them and the number of hours worked.

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The new law will place tips and gratuities outside the scope of a person’s contractual wages. It will oblige employers to display prominently their policy on the distribution of cash and card tips and service charges.

It will also oblige employers to distribute fairly and transparently all tips that are received in electronic form, such as through cards or smart phones.

Payment of tips and gratuities by electronic means, in contrast to cash tips that are paid directly to the worker, means that the employer is in control of how these tips and gratuities are distributed.

The electronic record generated by this payment method will support and facilitate inspections by the Workplace Relations Commission (WRC) in the event of a complaint being made.

How cash tips are distributed will be required to be included in an employer’s publicly displayed policy on the management of tips and gratuities.

Businesses will be required to display a “contract workers tips and gratuities notice” stating how tips, gratuities and service charges are distributed among contract or platform workers, such as those working in delivery services.

Minister for Employment Leo Varadkar said: "The vast majority of employers do their best to ensure tips are distributed fairly among staff. This law will make sure that is the case across the board, giving employees a new legal right over their tips.

“For customers then, I know most people are unsure about where their tips go and what the difference between a tip and a service charge is. From now on, establishments will be required to clearly show how everything is distributed and where it goes. This goes for whether you pay by cash or card.

“An important requirement of the new Bill is that the employer must provide a statement to workers showing the amount of electronic tips obtained in a period and the portion paid to the individual employee for that particular period. This will ensure transparency.

“This is one of five new workers’ rights I am bringing in as Minister this year. I am determined to make better working conditions a legacy of the pandemic. I firmly believe that this is necessary to recruit and retain the staff we will need to drive our enterprise economy forward. We will, of course, be sensitive to issues such as cost and competitiveness.”