Failing to do this, could lead to workplace disputes and attract negative publicity, says regional law firm Shakespeare Martineau.
A government investigation into how businesses in the sector treat tips and gratuities closed last month, following protests by the Unite union and others about the approach being taken by some employers.
Unions claim that such practices are unfair to staff and customers, many of whom only choose to leave a tip because they believe the money will go directly to the staff who served them.
Aye Limbin Glassey, employment law partner at Shakespeare Martineau’s Milton Keynes office, said: “Consumers, quite rightly, assume that any tip they leave is passed to workers as a Christmas gift regardless of whether it was paid in cash or by card. If this is not the case, they need to be made aware of this and ideally employers should have a policy in place which is clearly displayed.
“Restaurants and pubs can get extremely busy at this time of year and the systems they use to bank and distribute tips need to be carefully managed.”
Most businesses have a system in place which involves a nominated member of staff taking responsibility for distributing tips and gratuities fairly in accordance with any company policy. Such systems are administrative in nature and employers may feel that making a small deduction from any tips earned (usually between 8% and 10%) is a fair way of accounting for this use of management time.
Aye Limbin Glassey said: “Problems can arise if things are not happening in a transparent way. For this reason, it is best if businesses establish a policy for handling tips and gratuities and explain this to workers individually as part of the recruitment process, seeking their agreement if possible.
“Businesses may also wish to consider whether to deduct administrative charges for distributing tips and gratuities in the future given the adverse publicity this is attracting at present.”
A voluntary Code of Conduct was introduced in 2009 providing guidance for employers about how to deal with tips and gratuities. This states that employers should make sure that any tips policy is displayed clearly on the premises and that any changes to it should be agreed with staff.
However, the Code does not state that employers must pass all tips and gratuities over to their employees.
Aye Limbin Glassey said: “Clarity is needed to ensure that workers are being treated fairly and that customers are not being misled. This is particularly important at a time when many employers in the sector are concerned about the impact of the Living Wage. There could be a temptation for some businesses to start dipping into staff tips to compensate for increasing wage costs.
“Some smaller businesses may not use a HMRC-approved system to manage tips and gratuities and this could be exposing them to an increased risk.
“These employers should be aware that if they distribute tips and gratuities to staff directly they could face significant tax liabilities and potential claims from employees for any unlawful deductions that they make.”
