The Government has released its long-awaited consultation document regarding proposed changes to the way in which the hospitality industry treats tips and discretionary service charges paid by customers.
As widely expected, it contains proposals which will seek to stop businesses from paying tips and service charges to employees as part of their entitlement under the national minimum wage (NMW).
It also suggests an industry code of conduct to advise customers of how the business treats the tips and service charges they pay.
The Government estimates that almost 45,000 workers will be affected by the changes, although no estimate of the number of businesses affected is given.
If implemented as suggested, the changes will require businesses to increase their rates of salary to the current NMW rate of £5.73 per hour, and some businesses are thought to be facing an increase in their wage costs of almost 40 per cent.
There is concern that, in the current economic climate, this will be unsupportable without redundancies, significant price increases, or businesses keeping a larger share of the tips for themselves as permitted by law - a prospect which the Government acknowledges in its consultation.
Cost estimates to business for the proposed changes are up to £73m a year. This will come through a combination of higher wages and extra National Insurance contributions (NICs), payable by both employees and employers. Neither will be able to take the maximum advantage any longer of the exemption from NICs for tips and discretionary service charges.
HM Revenue & Customs is likely to receive an extra £15m a year in NICs if Government estimates are accurate.
The Government has said that it does not wish to interfere in, or regulate, the tronc systems operated by businesses, but that information regarding the arrangements should be made available to customers.
No preferred method of doing so is set out, but given that many of the arrangements in place are complex, it is perhaps difficult to see how these could be explained to customers in a simple and straightforward way, other than say via a business' website.
Even hospitality businesses whose current rate of salary is above NMW levels are likely to be affected, as an inflation-busting salary rise in certain businesses is bound to risk demands for higher wages across the sector as a whole.
Peter Davies is a partner at accountants Vantis. For more information, please call 020 7417 0417 or email Peter Davies
* The consultation is available on the Department for Business, Enterprise and Regulatory Reform (BERR) website: BERR Tipping Consulation. The consultation closes on 16 February 2009