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HMRC internal manual

National Minimum Wage Manual

Pay reference periods & elements of pay: tips, gratuities, service charges and cover charges


Relevant legislation

The legislation that applies to this page is as follows:

For pay reference periods commencing

* on or after 6 April 2015; National Minimum Wage Regulations 2015, regulation 10(m)
* before 6 April 2015; National Minimum Wage Regulations regulation 31(e) 

For pay reference periods starting on or after 1 October 2009

From 1 October 2009 the payment of tips, gratuities, service charges and cover charges do not count towards national minimum wage pay.

Where a customer provides such a payment directly to a worker, which is not handled by the employer, the amount does not count towards a worker’s total remuneration for national minimum wage purposes.

Where an employer handles such a payment on behalf of a customer then the amount of that payment should initially be included in the worker’s total remuneration (NMWM09060) but a corresponding reduction is then made when calculating the worker’s national minimum wage pay (NMWM09040).

However, if during the employer’s handling of the payment it loses its original identity (i.e. it simply becomes a payment from the customer to the employer, such as a payment in connection with a bill) then there will be no identifiable amount to be reduced from the calculation of the national minimum wage pay.

For example: The waitresses in a restaurant pool any tips left on tables and keep them in a tin behind the bar. At the end of the week they share them out equally. These amounts are not handled by the employer so do not count towards the waitresses’ national minimum wage pay.

In the same restaurant a 10% service charge is added to every bill. These amounts are paid directly into the business takings. Although the total amount of the service charge can be identified each week, it loses its identity when it becomes a receipt of the business. There is therefore no effect on worker’s national minimum wage pay.

The Department for Business, Innovation & Skills has published guidance titled “A code of Practice on Service charges, Tips, gratuities and cover charges”. This is a practical guide for businesses giving advice on how to operate in a fair and transparent manner. It also includes a code of best practice designed to improve the information available to both workers and consumers on gratuities, tips, service & cover charges.

For pay reference periods prior to 1 October 2009

Any payment made by the employer to the worker representing amounts paid by customers by way of a tip, gratuity, service charge or cover charge, counts towards national minimum wage pay if it was paid to the worker through the employer’s payroll.

So, amounts left by customers and given directly to workers or paid to workers directly from a troncmaster’s payroll are not payments which count towards a worker’s total remuneration (NMWM09050) and do not count towards national minimum wage pay.

However, if a troncmaster arranged for tips to be distributed and paid to workers via the employer’s payroll, then these amounts will count towards national minimum wage pay. It does not matter whether the troncmaster has physically received the money or not.