Law encourages restaurants to use tips to pay staff

National Minimum Wage Act provides that any service charge paid through payroll can be taken into account in calculating the minimum wage of an employee

For many years the restaurant industry has carefully manipulated customers into believing tips go to the staff. The opposite is the truth. Tips go to the restaurant in the majority of cases. If you went to a clothes shop to buy a shirt with a price tag of €20 and when you went to the till you were charged €22 with €2 described as a “service charge” would you accept it?

The restaurant industry has sought to disguise the real cost of a meal or drinks which they charge by adding on this service charge. Seeing a set meal advertised at €30 converts to €34.50 if there is a 15 per cent service charge. You might not mind if it went to the staff but this does not always happen.

Even those restaurants who state that tips go to staff do not always say it goes “in addition” to wages. It can go as part of staff wages.

The National Minimum Wage Act 2000 effectively encourages restaurants to use tips, from customers, to pay staff. The Act provides that any service charge, which would include tips, paid through payroll can be taken into account in calculating the minimum wage of an employee. Some of those restaurants whose signs say tips go to staff may well do so – but as part of their hourly rate of pay rather than in addition to their wages. Take an employee who is to be paid €9.80 per hour for a six-hour shift. The share of the tips for the employee on that shift is, say, €12. If the employer includes this as part of the employee’s wages, as they can, the restaurant is effectively paying just €7.80 an hour with customers paying wages of €2 an hour.


If the restaurant states tips will be paid on top of any wage then the employee would receive a rate of €11.80 per hour, being 20 per cent over the National Minimum Wage.

Cynical exercise

The retention of tips by restaurants is a cynical exercise by some. Just because it is possible to do so under the law does not make it morally right. Many working in restaurants are vulnerable part-time employees who rely on low-paid jobs to make ends meet. Vulnerable employees are always potentially subject to manipulation and exploitation.

There is a reasonable argument, that neither staff nor customers should be subjected to what I would call a 'rip-off culture' in our restaurants

There has been an argument put forward that requiring restaurants to pay tips to staff and account for tax on same may result in some employees being worse off. The idea that the Low Pay Commission would put this forward is staggering. No State agency should be effectively proposing tax evasion. The cynical attitude is nothing more than an attempt to deflect attention from the proposal that tips would be paid to staff in addition to their wages. The Revenue is well able to apply the tax code. Proposing that the sector would have a blind eye turned to its activity is effectively promoting tax evasion. We have a tax code. We cannot have a situation where there is cherry picking as regards to which industries the tax code applies to.

Opaque system

The approach by the Government has been less than transparent. Various hurdles have been erected to oppose staff receiving tips. I wonder if in reality the real reason is the Government not wishing to antagonise the hospitality industry where there was a furore over the imposition of the higher rate of VAT in the last budget from the industry. Allowing restaurants to continue to harvest tips which customers intend to go to staff might be seen as nod and a wink to the industry – a consolation prize for having the higher rate of VAT imposed upon them.

The opposition from the Government is difficult to fathom. Fixed service charges are at best questionable. There is a simple solution. Fixed service charges are outlawed. Customers then know the real cost of their meal and drinks. It is the price on the menu. Tips can then be directed by law to go to the staff. It will then be a matter for customers to decide if they want to leave a tip.

We currently have in Ireland an opaque system of charging in our restaurants. It is neither transparent nor open. It leaves open the possibility of staff and customers being manipulated and exploited by some restaurants. There is a reasonable argument, that neither staff nor customers should be subjected to what I would call a “rip-off culture” in our restaurants. It would not be accepted in other businesses. I would ask why should we still accept it in restaurants?

Richard Grogan is a partner in Richard Grogan & Associates solicitors