Tips, gratuities and service charges

What are 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.

New regulations are needed to give effect to the Act. This page will be updated once the new regulations are introduced.

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.

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 of group of employees
  • Voluntarily made to an employer

Upcoming changes to tips and gratuities and service charges

The Payment of Wages (Amendment) (Tips and Gratuities) Act 2022 became law on 20 July 2022.

The Act, introduces new rules about how employers share tips, gratuities and service charges amongst employees. It also makes 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.

New regulations are needed to give effect to the Act. Consultations will start shortly with employee and employer organisations, leading to the new regulations.

This page will be updated once the new regulations are introduced.

Page edited: 21 July 2022