At Bhayani Law, specialists in HR and Employment Law, we’ve seen a growing number of employers and employees, particularly in the hospitality and leisure sectors, ask a key question:
Should tips be included when calculating holiday pay?
It’s a timely and important issue. In sectors like hospitality, restaurants, bars, and leisure, tips and service charges often make up a substantial portion of an employee’s income. A recent employment tribunal decision has added clarity, reinforcing the argument that tips should be included in holiday pay calculations. Here’s what employers need to know to remain compliant.
UK Holiday Pay Law: What Counts as Normal Remuneration?
Under UK employment law, statutory holiday pay must reflect an employee’s “normal remuneration.” This includes not just basic salary, but also regular overtime, commissions, bonuses, and now, potentially, tips paid through a tronc system.
Until recently, the status of tips and tronc payments was unclear. Some employers argued these were discretionary, not contractual. But a recent case has challenged that view.
Recent Tribunal: Tronc Tips Count Towards Holiday Pay
In Mr M Palanki v The Big Table Group Ltd, the employment tribunal found that tips distributed via a tronc formed part of Mr Palanki’s normal remuneration and should be included in statutory holiday pay calculations.
While the judgment is not binding on other tribunals, it provides a strong indication of how similar cases may be approached in the future, particularly where tronc payments are regular, consistent, and form a key part of an employee’s income.
What This Means for Employers in the Hospitality Sector
If your staff receive regular tips or service charges, particularly through a tronc, you should:
- Review payroll and holiday pay calculations
- Ensure your holiday pay policies reflect all aspects of normal pay
- Take steps to avoid claims for unlawful deduction of wages
Failing to act could lead to claims for backdated holiday pay, tribunal proceedings, and damage to your employer reputation.
Advice for Employees: Know Your Rights
If tips form a regular part of your earnings and they aren’t included in your holiday pay, you might be underpaid. Seek advice or speak to your employer about a possible underpayment of holiday pay.
Need Support?
Whether you’re an employer navigating legal risk or an employee exploring your rights, our HR and employment law experts can help.
As proud partners of the British Institute of Innkeeping (BII), we specialise in helping hospitality businesses stay compliant with expert HR and Employment Law advice, including fixed-fee HR plans designed for peace of mind.
Call 0333 888 1360 or email [email protected] to speak to our expert team today.
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