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Tips, gratuities and service charges have always been part of the hospitality sector and often a way that employees can supplement their earnings. Recent cases of unfair practices with large restaurant chains has lead the government to put a spotlight on this practice in an effort to ensure tips are distributed fairly to employees.
So what does this have to do with payroll?
We have increasingly become involved in this area due to the way some businesses are trying to manage tips and also because tips are subject to tax.
If these tips are collected by the employer and paid out in wages they are also subject to NI and PAYE. There is a potential interplay between VAT, corporation tax, PAYE, NI and Pension contributions and the cost of getting it wrong can be significant, even when employers are trying to do the right thing.
For a more involved explanation of this area, read our blog on our hospitality website.