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Speech by Leo Varadkar TD, Tánaiste and Minister for Enterprise, Trade and Employment Second Stage the Payment of Wages (Amendment) (Tips and Gratuities) Bill 2022 in the Seanad

A Cathaoirligh, and members of Seanad Éireann,

I am pleased to introduce this Bill to Seanad Éireann today.

I have set three objectives in my role as Minister for Enterprise Trade and Employment:

  1. To help businesses respond to Covid and Brexit – to survive and prosper.
  2. To restore and exceed pre-pandemic employment levels by achieving a target of a record 2.5 million people in work by 2024 and ensure there are job opportunities in all parts of Ireland.
  3. To create jobs with better terms and conditions, that are more sustainable, secure and valued.

As part of implementing this third priority, I plan to establish five new workers’ rights this year – that is,

  1. a new public holiday,
  2. statutory sick pay,
  3. the right to request remote working,
  4. new rights around redundancy for people laid off during the pandemic, and
  5. better protection of workplace tips.

A Cathaoirligh, as today is the 1st of February, it’s fitting to mention that from next year we will have an extra public holiday at the start of February to mark Imbolg/St Brigid’s day. It will be observed on the first Monday of February except where the 1st of February falls on a Friday in which case it will be observed on that day.

This will be the first Irish public holiday named after a woman. It marks the half-way point between the winter solstice and the equinox, the beginning of spring and the Celtic New Year.

The creation of a tenth public holiday will also bring Ireland more into line with the European average.

Turning to the Bill before the House today on tips and gratuities, I want to start by acknowledging the role of the Leader of the Seanad, Regina Doherty, in its development.

She made significant progress on it during her time as Minister in the last government and I look forward to working with her and all of you here in the House as we bring it through the Oireachtas.

I also want to acknowledge Senators Warfield, Gavan and Ó Cloghartaigh for their Private Members Bill on this matter.

I’m aware that other parties had different proposals to the Government. I am sure this Bill is not perfect, can be improved and I am open to amendments that are workable, beneficial and constitutional.

I want to thank the Low Pay Commission and the Workplace Relations Commission for their practical advice on this matter.

On the face of it, this seems like a straightforward issue. As we delved into it more and more, we found it was not. It is difficult to find the right way to approach some of the nuances. We have done the best we can to do so.

Some background and context. There has been anecdotal evidence that a minority of employers, particularly in the restaurant and hospitality sectors, use tips or gratuities – given by customers and intended for staff – as a means of meeting their payroll obligations and other overheads. 

Currently, there is no legislation which obliges employers to pass on any tips received by them to their staff. Therefore, a customer has no way of knowing if the tip they left was given to the intended recipient or recipients and the worker has no protection if their employer chooses to keep some or all the tips left by customers.

While most employers treat their staff well, I think we have all heard stories that some tips are simply included as part of overall business income or used to contribute to employees’ contractual base wages.

With this in mind, a Bill was brought forward by Senator Regina Doherty when she was Minister for Social Protection. It underwent pre-legislative scrutiny before the Joint Committee on Employment Affairs and Social Protection on 10th October 2019 and the Committee’s report was published on 11th November 2019.  The legislation fell when the General Election was called in early 2020.  

The LPC and WRC have advised that heavy regulation in this area is not necessary and could even backfire by undermining some informal arrangements that are working well from the point of view of workers. We have also been strongly advised that trying to regulate cash tips too tightly would be unenforceable where cash tips are controlled by staff and not the employer.

The main sectors to which the Bill will apply are tourism, hospitality, hair and beauty, taxi, and delivery services, but legally it will apply in all settings and that needs to be borne in mind. It’s not just applicable to restaurants and bars.

I want to emphasise that it is important that the tourism and hospitality sectors are seen as a valued and sustainable career choice and this Bill will bring clarity and transparency to this important aspect of the tourism sector work experience. These sectors tend to attract younger people, students and migrant workers for whom English is often not their first language. 

A recent survey undertaken by the union ‘Unite’, along with research carried out by Dr Deirdre Curran of NUI Galway, found that a significant number of workers did not know their employment rights. 

This Bill will have a beneficial impact for all these groups and will provide clarity and transparency on the meaning of tips, gratuities, and service charges. It will also give customers clear information on where their tips and service charges go. Many customers believe service charges are tips. This is not the case.

There are 4 main aims for this Bill:

  1. It will prohibit employers from using tips and gratuities to ‘make up’ contractual rates of pay.  An employer cannot make a deduction from a person’s wage in relation to tips. The policy intent is to ensure tips and gratuities are additional to the wages in all circumstances.
  1. The Bill will provide a legal entitlement for workers to receive tips and gratuities paid in electronic form – that is, by debit or credit card or other electronic means – with a provision that these tips and gratuities should be paid out to workers in a fair and transparent manner. The employer must provide a statement to workers showing the amount of tips obtained in a period and the portion paid to the individual employee for that particular period. This will ensure transparency.
  1. An employer may not retain any share of tips received electronically, unless such retention is required by this Act – for example, to pay tax, or bank charges arising from providing electronic modes of tipping, or only where he or she regularly performs to a substantial degree the same work performed by some or all the employees, such amount that is fair and reasonable in the circumstances.
  1. The Bill will also require businesses to clearly display their policy on how tips, gratuities and mandatory service charges are distributed. The customer will be better informed about how tips are treated.

The Bill also provides for similar provisions for new models of work such as platform workers who are not employees, but their work typically attracts tips – for example, food takeaway delivery apps.

While employers will be required to include detail on how cash tips are dealt with when displaying their policy towards tips and gratuities, there will be no other regulation of ‘cash tips’ as this is, according to the WRC, ‘unworkable’. Cash tips are not accountable and are not under the control of the employer. They are controlled by the staff and bringing them under the control of the employer or legislation such as this could have unwelcome consequences for workers in terms of income tax and social welfare as receipt would no longer be a matter of self-declaration.

Payment of tips and gratuities by electronic means, in contrast to cash tips paid directly to the worker, go through employers’ books, meaning that the employer is in control of how these tips and gratuities are distributed. The electronic record generated by this payment method will facilitate inspections by the WRC.

With an ever-increasing number of ways of ‘tipping’ using ‘cash-less’ and ‘contact-less’ apps, such as ‘Strikepay’ and ‘TipJar’, the payment of tips by electronic means may well become the predominant way of tipping staff into the future.  It should be noted that tipping apps can be utilised to ensure electronically paid tips go to staff directly and not through the employer,

There will be no interference with schemes where tips are managed by employees themselves, for example under a “tronc” system.  These can continue to operate as they currently do.

A Tronc scheme is a common fund into which tips and gratuities are paid to be divided out amongst staff according to a certain formula.  An employer has no role in determining the allocation of tips.  Troncs are common in hospitality, gambling and leisure sectors.  The operation of tronc schemes is unaffected by this Bill.

There will also be no change in the tax treatment of tips and gratuities. 

At the moment, service charges are a grey area. Many customers believe that a service charge is a tip. This is not the case, at least not in law.

The Bill will maintain the position that mandatory service charges levied by a business, as distinct from voluntary and discretionary tips and gratuities, form part of business revenues. I have asked my officials to consider an amendment that would also prohibit the use of mandatory service charges to make-up wages and to require that they go to staff as income.

Discretionary service charges, however, will fall within the Bill’s definition of ‘tips and gratuities’, and the Bill will apply to these types of voluntary customer payments.

Our current understanding is that a portion of mandatory service charges will often go towards tips.  For example, a hotel may have an arrangement that has been agreed with staff that out of all 12% mandatory service charges, 3% goes to the staff as tips.  By requiring businesses to display their tips and service charge policies, it will ensure transparency.

In relation to redress, an officer of the WRC, when adjudicating on a complaint, may take into account certain factors when determining whether tips were distributed fairly, including the seniority or experience of an employee, the value of sales generated by them and the number of hours worked. All employees must be consulted on the policy that is introduced. 

A Cathaoirligh, I am conscious of cost concerns on businesses when introducing new laws particularly on small and medium enterprises and those along the border competing with businesses in Northern Ireland where workers rights are different, often weaker and wages and costs lower.

There may be a minor cost burden to industry with employers having to prominently display a statutory notice on the employer’s tips and gratuities and mandatory service charges policy. However, information will be provided by my Department and the WRC in the form of templates for policies on tips to assist employers develop their own policy and to help them identify the types of information and procedures that should be outlined and displayed in their policy. These templates will be promoted and circulated widely to assist with compliance and help minimise the burden on micro and small businesses.

The requirement for employers to provide a statement to workers when a payment is being made will also impose a burden. However, as this requirement only applies to electronic tips, the existing electronic records will aid in the efficiency of producing the statement and minimise the administrative burden involved.

I will now provide a brief explanation of the various sections of the Bill.

Section 1 provides for definitions used within the Act.

Section 2 inserts new definitions for tips, gratuities, and mandatory service charges in the Payment of Wages Act 1991.

Section 3 inserts four new sections 4A to 4D in the Payment of Wages Act 1991.

The new Section 4A will enable me, as Minister, to make regulations to prescribe the employers or class of employers to which the new sections 4B to 4D of the Payment of Wages Act 1991 will apply.  It will also enable me, as Minister, to prescribe by regulation an employer or a class of employers, to which sections 4B to 4D do not apply.

Under the new Section 4B employers will be required to distribute fairly and in a transparent manner, tips that are received in electronic form i.e., through debit or credit cards or other smart type payment cards. Employers will not be allowed retain any share of tips or gratuities received by the employer electronically unless such retention is required or permitted by this Act. Only where the employer regularly performs to a substantial degree the same work that is performed by some or all of the employees will they be allowed to retain an amount which is fair and reasonable in the circumstances. In other words, a share that is proportionate to the amount of work that they, as employer, perform.

In considering a complaint on whether a distribution of tips and gratuities to an employee is fair, an adjudication officer of the WRC shall have regard to all of the factors or circumstances that he or she considers relevant.

Section 4B also requires an employer to provide a statement to workers showing the amount of tips including discretionary service charges obtained in a period and the portion paid to the individual employee for that particular period. This will further ensure transparency in the amount of tips shared.

An employer, before establishing or making a material change to their policy on the distribution of tips or gratuities or the treatment of mandatory service charges, will be required to consult with those employees.

A new Section 4C will prohibit an employer from making a deduction from an employee’s wages in respect of tips or gratuities made to, or left for, an employee, or make a deduction from an employee’s tips or other gratuities other than as required under statute or by any instrument made under statute, or to the extent required to meet costs directly arising from providing electronic modes of payment for tips.

A new Section 4D requires an employer to display a ‘Tips and Gratuities Notice’ stating whether or not tips or gratuities are distributed to and amongst employees, the manner in which they are distributed and the amounts so distributed, and also whether services charges, or any portion of them, are distributed to and amongst employees, and if so, the manner in which they are distributed and the amounts so distributed.

Section 4D also allows me, as Minister, to make regulations regarding the information that must be contained in a tips and gratuities notice, and the way, or particular locations at which a tips and gratuities notice must be displayed. This includes a website or other online digital platform hosted by the employer, or at the place of business at which employees perform their work or service.

A new Section 4E requires prescribed persons to display a ‘Contract Workers Tips and Gratuities Notice’ stating whether or not tips or gratuities are distributed to and amongst ‘contract workers’, the manner in which they are distributed and the amounts so distributed, and also whether services charges, or any portion of them, are distributed to and amongst ‘contract workers’, and if so, the manner in which they are distributed and the amounts so distributed. For example, this would cover businesses that contract with platform workers who are not direct employees but whose work typically attracts tips and gratuities.

Section 4E also allows me, as Minister to make regulations regarding the information that must be contained in a ‘Contract Workers Tips and Gratuities Notice’, and the way, or particular locations at which a tips and gratuities notice must be displayed.

For the purposes of section 4E, “contract worker” is defined as a natural person who carries out work other than as an employee, including on a contract for service, for a person to whom this section applies.

Section 4 of the Bill provides for an amendment to section 6 of the Payment of Wages Act 1991, that will provide for an adjudication officer of the Workplace Relations Commission (WRC) to direct an employer to repay any unlawful deduction of tips or gratuities, arising from a complaint being made to the WRC.

Section 5 of the Bill provides for an amendment to section 3 of the Terms of Employment (Information) Act 1994. This means that a statement regarding the employer’s policy on the way tips or gratuities and mandatory service charges are treated will become part of the core terms that a new employee is to be furnished with within 5 days of commencing employment.

Sections 6, 7 and 8 of the Bill deal with enforcement and compliance issues and provide for the relevant amendments to be made to the Workplace Relations Act of 2015. This enables and authorises the Workplace Relations Commission (WRC) to carry out inspections and to take complaints regarding compliance with the new requirements set out in this Act.

Section 9 of the Bill relates to the short title, commencement, and collective citation of the Act.

Conclusion

Most employers do their best to ensure tips are distributed fairly among staff. This Bill will make sure that is the case across the board, giving employees a new legal right.

For customers, I know most people are unsure about where their tips go and what the difference between a tip and a service charge is.  From now on, establishments will be required to clearly show how everything is distributed and where it goes. This goes for whether you pay by cash or card.

An important requirement of the new Bill is that the employer must provide a statement to workers showing the amount of electronic tips obtained in a period and the portion paid to the individual employee for that particular period. This will ensure transparency for workers.

As I said earlier, this Bill is one of five new workers’ rights that I am bringing in as Minister this year. I am determined to make better working conditions a legacy of the pandemic and this Government.  I firmly believe that this is necessary to recruit and retain the staff we will need to drive our enterprise economy forward.  We will, of course, be sensitive to issues such as cost and competitiveness.

In conclusion, the Bill will improve the rights and entitlements of workers, particularly of lower paid workers, as well as providing transparency for customers.

 

I commend the Bill to this House.