New clause 6 - Tips, etc., not to be taken into account
Employment Relations Bill
10:45 pm
Mr Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations, Competition and Consumers), Department of Trade and Industry; Bradford South, Labour)
I understand and have some sympathy with the purpose of the new clause. However, it would not achieve the desired effect. As my hon. Friend the Member for Hamilton, South has said, many hon. Members will recall the private Member's Bill tabled by my hon. Friend the Member for Falkirk, East in July. The new clause clearly carries on the spirit of that Bill; it is intended to ensure that any service charges or cash tips paid by customers should belong to the workers and be additional to the minimum wage.
Let me make it clear that any cash or other tips that are not paid through the employers' payroll do not count towards the minimum wage at present. That is the case whether the cash tips are taken off the table by the waiter or paid through a centralised system. It is already illegal for employers to pay their staff £3 an hour and oblige them to make up the difference through tips.
The regulations were drafted to refer to payments that are not made through the employers' payroll for a number of reasons, but primarily because the long-standing approach, taken under previous legislation, including the wages council legislation, has been that money passing through the employers' books belongs to the employer, and that what counts for the pay calculation is the money paid by the employer to the worker. A pragmatic decision was also taken that the Government should avoid getting drawn into regulating the extremely complex systems for the distribution of tips that exist in the restaurant sector.
As I have said, I understand the aim of the new clause. There is probably general sympathy for the view that tips, but not necessarily service charges, should belong to the waiters, although perhaps other workers also deserve recognition.
It might be helpful to explore how the new clause would work. It makes it clear that all service charges, tips and so on should not be counted towards the minimum wage, whether they are paid through the payroll or not. In effect, it says that the employer must put all of these moneys into a separate fund, and that that fund should be shared out between the workers and paid on top of the minimum wage.
The first difficulty is that the new clause does not state which workers should be paid out of the fund, or what proportions of the fund should belong to each worker. That is not necessarily a problem for minimum wage enforcement officers, but it could be a recipe for confusion. It might be possible for an employer to pay almost all the fund to one favoured worker, and very little to all the others. The new clause would not tackle that.
However, the deeper problem with the new clause is that it creates an unworkable situation; it does not prevent employers from passing tips through the payroll. It would therefore be extremely difficult for enforcement officers to decide whether the correct amount of money—cash, in particular—had been carried through the payroll in each pay reference period.
Let me give a practical example. If an employer paid a worker £4.75 an hour, how could an enforcement officer determine whether that complied with the minimum wage? That would be extremely difficult. The officer would need to find out exactly how much was paid to the restaurant in each pay period in the form of cash tips, service charges and so on. Cash transactions can be especially difficult to monitor. The officer would then need to track all those amounts through the employers' payroll to establish whether the correct total figure for tips and service
charges had been passed on to the workers. It would then be impossible for him to decide whether the amounts paid by the employer to each worker were correct, because, as I mentioned earlier, the new clause does not say which workers should benefit from the tips, or what percentage of the total they should be entitled to receive.
In conclusion, legal intervention into this extremely complex area is difficult. Tackling the question of how much employers should pay on top of the minimum wage and how that should be calculated would be a significant change in the Government's approach. I assure my hon. Friend the Member for Hamilton, South that we have considered the matter closely, and it is hard to see a clear way forward at the moment. I understand his reasons for tabling the new clause. Although the Government cannot accept it, I assure him that we will keep the position under review.