What are the rules regarding gratuities at work?

What are the rules regarding gratuities at work?

If you are an employer or employee enjoying success during the peak season of the hospitality industry, you should be reaping the rewards of your hard work as the sun beats down.  These rewards may be tips for staff, however, when it comes to tax and staff gratuities, are you in the know? Avanti’s handy guide will ensure that you know how to handle tips, whatever the weather.

Employers and staff working in sectors prone to receiving tips should be cautious – there is no such thing as a free lunch, if employees are receiving income from tips, tax is applicable and national insurance could be too. Tips do not count towards wages; therefore, an employees basic wage must meet the applicable national minimum wage.

As an employee, income tax will need to be paid on any tips received.  If a cash tip is received direct from the customer, National Insurance is not applicable.

Self-employed personnel will need to maintain a record of tips received and include the total figure for the tax year 6th April- 5th April in their tax return.  If tax is collected through the tax code (PAYE), HMRC will estimate the figure based on information provided and collect the tax in the same way that income is taxed.  It is recommended that an accurate record is kept for each period that tips are paid, noting absence or variances that affect the tips received, or whether paid direct from a customer or via an employer using a shared system.


Tips Paid using card or cheque

If an employer accepts tips via card transactions or within a cheque payment, they become liable for ensuring the income tax due is paid and must do so through PAYE.

Where tips are pooled together and shared, this is known as a ‘tronc’ and must be controlled by a ‘troncmaster’ who will total the tips and divide in line with the workplace policy. As an employer, HMRC must be aware that there is a tronc and who the troncmaster is.  It is best practice to have a policy in place which should cover:

  • Tip share; e.g. if it is calculated by a percentage relatable to hours worked
  • What happens if the event of employee absence e.g. Maternity Leave, Generally Absent/Sick
  • Do employees receive a share if in a probationary period
  • Are employees allowed to accept direct tips from customers, what action applies if not
  • Deductions; e.g. if an employee makes an error that costs the business money, can this be deducted from the tips

If you are unsure on how to handle tips as an employer or an employee in receipt of tips looking for HMRC advice, Avanti can help you. For a no obligation advice meeting, call us today (08000) 388 799.

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