New laws on the treatment of tips and gratuities by employers have come into effect
The Payment of Wages (Amendment) (Tips and Gratuities) Act 2022 was signed into law earlier this year and the Regulations giving effect to the Act commenced on 1 December 2022.
The purpose of the Act is to: (a) provide clarity on the meaning of tips, gratuities and mandatory charges; (b) place tips and gratuities, but not mandatory charges, outside the scope of a person’s contractual wages; (c) oblige employers to display prominently their policy on the distribution of tips; and (d) oblige employers to distribute fairly and in a transparent manner, tips that are received in electronic form (i.e. through debit or credit cards).
To whom does the Act apply?
The Payment of Wages (Application of Sections 4B to 4F) Regulations 2022 prescribe the sectors to whom the Act will apply. Where an employee’s responsibilities relate, in whole or in part, to at least one of the following services, the employer is prescribed as an employer to whom the Act will apply:
- tourism services;
- hospitality services;
- hair, beauty, tattoo and piercing services;
- services provided by licenced bookmakers;
- services related to gaming at a premises that is used primarily for the provision of such services; and
- transport services in certain public service vehicles e.g. taxis.
The Act will also apply to those who operate online digital platforms providing certain services, who engage contract workers to provide these services. Services include food delivery services and transport services in certain public service vehicles. A contract worker is defined as a natural person who carries out work other than as an employee, including on a contract for service. An example is where businesses contract with platform workers who are not direct employees but whose work typically attracts tips, such as takeaway delivery drivers.
The Act provides clarity on the meanings of tips, gratuities and mandatory charges. Tips or gratuities are defined as voluntary payments made to or left for an employee/contract worker in circumstances in which a reasonable person would be likely to infer that the customer intended or assumed that the payment would be kept by the employee/contract worker.
On the other hand, a mandatory charge is defined as a contractually imposed and receipted payment that a customer is required to pay in order to receive certain goods or services and is payable in addition to an amount payable for such goods or services.
The Act makes it illegal for employers to use tips and gratuities to make up basic wages.
Employers cannot use the term ‘service charge’ or similar term unless the payment goes directly to staff. If an employer leads customers to believe
that a mandatory charge will be distributed to employees, this charge must be treated as a tip or gratuity.
Treatment of Certain Tips and Gratuities
The Act provides that employers are required to distribute fairly and in a transparent manner, tips that are received in electronic form. This obligation does not apply in respect of cash tips.
Employers will only be allowed to retain any share of tips or gratuities received by the employer electronically in two circumstances:
- where such retention is required or permitted by the Act. This relates to a situation where, for example, tips are retained to pay bank charges arising from providing electronic modes of tipping; and
- where the employer regularly performs, to a substantial degree, the same work performed by some or all of the employees. In this situation, an employer is only permitted to retain such amount which is fair and reasonable in the circumstances.
An employer must, no later than 10 days from the date on which a distribution of tips is made, give to an employee a statement in writing specifying the total amount of tips distributed by the employer for the period to which the statement relates, and the amount of tips distributed to the employee to whom the statement is provided. The employer must take such reasonable steps as are necessary to ensure that this information is treated in a confidential manner.
Any material change to an employer’s policy on tips or gratuities or the treatment of mandatory charges has to be done in consultation with employees.
Tips and Gratuities Notice
The Act obliges an employer to display a ‘Tips and Gratuities Notice’. This Notice must state:
- whether or not tips or gratuities (including cash tips and gratuities) are distributed to and amongst employees;
- the manner in which they are distributed and the amounts so distributed;
- whether mandatory charges, or any portion of them, are distributed to and amongst employees, and if so, the manner in which they are distributed and the amounts so distributed;
- that the Payment of Wages Act 1991 requires the employer to distribute to employees any electronic tips or gratuities received by the employer; and
- the employer’s policy on tips or gratuities made to, or left for, employees in a form other than an electronic mode of payment.
Where contract workers are involved in an employer’s business, the Act obliges an employer to display a ‘Contract Worker Tips and Gratuities Notice’. This Notice must contain the information set out at 1-3 above.
The Payment of Wages (Display Notice) Regulations 2022 prescribe the manner in which such notices must be displayed. An employer must display a Tips and Gratuities Notice in each of the following locations:
- where the employer provides a service on a premises or part of a premises, at the premises or part of the premises on which the service is provided and in at least one additional location at which consumers may pay in person for the service;
- where the employer provides a service in a public service vehicle, in a location within the vehicle to which consumers have access while such service is being provided; and
- on each online digital platform used by the employer in connection with the service.
The Notice must be displayed in a position, form and manner which is capable of being easily read by consumers.
Where contract workers are involved in an employer’s business, the Act obliges an employer to display a Contract Worker Tips and Gratuities Notice:
- on each online digital platform used by the employer in connection with the service; and
- in such form and manner which is capable of being easily read by consumers.
It is expected that information will be provided by the Department of Enterprise Trade and Employment and the Workplace Relations Commission in the form of template policies on tips, to assist employers to develop their own policies and to help them identify the types of information and procedures that should be outlined and displayed in their policies.
Prohibition on Certain Deductions
An employer cannot make a deduction from an employee’s wages in respect of tips or gratuities made to an employee, or make a deduction from an employee’s tips or gratuities. There are two exceptions to this:
- where such deduction is required by law; and
- where such deduction is fair and reasonable in order to meet costs directly arising from providing electronic modes of payment for tips.
Terms of Employment (Information) Act 1994
The Act also amends the Terms of Employment (Information) Act 1994. A statement regarding the employer’s policy on the manner in which tips or gratuities and mandatory service charges are treated will become part of the core terms that a new employee must be provided with within 5 days of commencing employment, where the employer is a person to whom the Act applies.
Complaints and Redress
An employee can make a complaint to the Workplace Relations Commission where their employer fails to distribute electronic tips or gratuities in a fair and transparent manner, or where their employer unlawfully retains any share of electronic tips or gratuities. In considering a complaint about whether a distribution of tips and gratuities to an employee is fair, an Adjudication Officer shall have regard to factors including:
- the seniority or experience of the employee;
- the value of sales, income or revenue generated for the business by the employee;
- the proportion or number of hours worked by the employee during the pay period in which the tip was made;
- whether the employee is full-time or part-time;
- the role and influence of the employee in providing service to customers;
- whether the employee was consulted in relation to the manner of distribution; and
- whether there is an agreement between the employer and the employee providing for the manner in which tips or gratuities are to be distributed.
An employee can also take a complaint to the Workplace Relations Commission where their employer makes an unlawful deduction from their tips or gratuities or from their wages in respect of tips or gratuities made to them. If the employee’s complaint is well founded, an Adjudication Officer may order an employer to repay up to the net amount of wages or tips that would have been payable in respect of the week immediately preceding the date of the deduction, if the deduction had not been made or, if the amount of the deduction is greater than that amount, twice the former amount.
Enforcement by Inspectors
The Workplace Relations Commission may carry out inspections of businesses to ensure compliance with the Act. Where a Workplace Relations Inspector has reasonable grounds for believing that an employer has:
- breached the obligation to provide a written statement to an employee no later than 10 days from when a distribution of tips was made;
- used the term ‘service charge’ or similar term, or in any other way led customers to believe that a mandatory charge would be distributed to employees, in circumstances where this charge was not distributed to employees; or
- failed to display a ‘Tips and Gratuities Notice’ or a ‘Contract Worker Tips and Gratuities Notice’,
they may issue a Fixed Payment Notice to that employer. If that employer chooses to make the payment specified in the Notice within 42 days, no prosecution will be instituted against them. However, the Workplace Relations Commission may prosecute if the individual does not make the payment.
Where an employer fails to adhere to certain obligations under the Act, they are liable on summary conviction to a class C fine of a maximum of €2,500.
With thanks to Melissa O’Sullivan for her contribution to this article.