Tips, gratuities and service charges

Tipping is mainly associated with the hospitality sector. It is also common among other services such as taxi drivers, hairdressers, tour guides and delivery drivers.

Employees usually get tips from customers through one of the following types of payment:

• Mandatory service charge
• Discretionary service charge
• Tip or gratuity paid to the employer by credit or debit card
• Tip or gratuity paid into a communal pool, for example, a staff box or similar
• Tip or gratuity handed directly to the employee

The Payment of Wages (Amendment) (Tips and Gratuities) Act 2022 became law on 20 July 2022. It introduced new rules about how employers share tips, gratuities, and service charges among employees. The Act came into effect on 1 December 2022.

What is a mandatory service charge?

A ‘mandatory service charge’ is a payment that a customer must pay for certain goods or services, in addition to the cost of the goods or services.

This could include, for example, cover charge, table charge or corkage.

What is a tip or gratuity?

A ‘tip or gratuity’ is a payment made by a customer which they assumed would be kept by the employee or shared with other employees.

It is either:

• Voluntarily made to, or left for an employee or group of employees
• Voluntarily made to an employer

The Payment of Wages (Amendment) (Tips and Gratuities) Act 2022 came into effect on 1 December 2022.

The Act, introduced new rules about how employers share tips, gratuities and service charges amongst employees. It also made it illegal for employers to use tips or gratuities to make up basic wages.

The legislation will be reviewed after one year to assess its effectiveness and decide if further measures are needed.

Sectors covered

The legislation covers service areas where tipping is common, including tourism, hospitality, hairdressing, taxi, and delivery services.

It applies to employees in services such as restaurants, pubs, hotels, guesthouses, tour companies, beauty salons and bookmakers.

Restrictions on the use of ‘service charges’

Voluntary service charges are the same as a tip or a gratuity. Mandatory service charges are charges that must be paid by the customer, on top of the cost of the product or service.

Employers are banned from describing a mandatory service charge applied to a customer’s bill as a 'service charge' unless the payment is treated by the employer in the same way as electronic tips or gratuities.

This means that mandatory service charges can only be added to a bill if the money goes to employees.

Policy on how tips or gratuities will be distributed

All employees must be consulted on the policy introduced on how tips or gratuities will be distributed. Employers must also consult with employees before making a material change to the policy.

Distribution of card or smart phone tips

Electronic tips received by the employer must be distributed fairly and in a transparent way.

Electronic tips include tips paid by:

• Debit or credit card
• Smart card
• Cashless or contactless tipping apps or platforms
• ‘Push notification’ apps

Employers can consider certain factors when deciding how to distribute tips, including:

• Seniority or experience
• The value of sales or revenue generated
• The number of hours worked
• Whether the worker is on a full-time or part-time contract
• The worker’s role in service delivery

Your employer must give you a statement of the tips and gratuities distributed, including the total amount of electronic tips received during a particular period and how much was paid to you. You must get this statement within 10 days of the tips and gratuities being distributed.

Distribution of cash tips

Cash tips are usually paid directly to the worker.

If tips are managed by employees themselves, for example under a ‘tronc’ system, the distribution rules above do not apply.

However, employers must set out how cash tips are distributed in its publicly displayed Tips and Gratuities Notice’ – see below.

Customers have the right to know what service charges are used for and who they go to.

Since 1 December 2022, employers must clearly display their policy on how cash and card tips, gratuities and service charges are distributed.

The tips and gratuities notice must clearly state:

• Whether or not tips or gratuities are distributed to and among staff
• The way they are distributed and the amounts distributed
• Whether or not service charges (or any portion of them) are distributed and if so, how they are distributed and the amounts distributed

You can see a sample tips and gratuities notice in Appendix 1 of the Workplace Relations Commission (WRC) Information Guide to the Payment of Wages (Amendment) (Tips and Gratuities) Act 2022 (pdf).

All electronic tips received by the employer must be distributed fairly and in a transparent way.

This will be inspected through the Workplace Relations Commission (WRC).

The WRC can order an employer to reimburse any unlawful tip or gratuity deductions.

If you are not getting the tips you are due, you should speak with your employer first.

If you cannot resolve the problem with your employer, you can make a formal complaint to the WRC.

You must make your complaint using the online complaint form within 6 months of the dispute or complaint occurring. This time limit may be extended for a further 6 months, but only where there is a reasonable cause which prevented you from bringing the complaint within the normal time limit.

Read more about how to make a complaint, including details of the WRC adjudication process.

You can get more information from the Workplace Relations Commission’s Information and Customer Service.

The WRC has an Information Guide to the Payment of Wages (Amendment) (Tips and Gratuities) Act 2022 (pdf).