Industry attempts to delay implementation ignored by Ministers
Despite an industry campaign from industry to delay changes, the Government has confirmed that from 1 October 2009 new regulations will be introduced to prevent any payment of tips from counting as ‘earnings’ for the National Minimum Wage (NMW).
In response to an earlier consultation paper, Ministers admitted that the change will cost industry almost £100m per year, of which £19.5m is extra National Insurance Contributions (NIC). Industry groups believe this figure to be grossly underestimated.
Businesses will still retain the right to keep a proportion of tips or service charges for themselves, and the Government concedes that many may seek to take advantage of this to offset the additional costs they now face. Indeed, it is interesting that in its response the Government admitted that some employees may actually be worse off as a result of the changes.
From 1 October 2009, it will no longer be possible for employers and employees to pay NIC on less than £5.73 per hour for workers aged 22 and over. This is regardless of the type of tronc system in place or whether all payments are processed through a single payroll. The Low Pay Commission has yet to decide if NMW rates are to be increased this year and, if so, by how much.
Current NIC rates are 11% for employees and 12.8% for employers, although these are both increasing by 0.5% with effect from 6 April 2011.
The Government continues to consult over the proposed ’disclosure’ regime, whereby businesses provide information to their customers about how they deal with tips and discretionary charges paid.
There are a number of alternative solutions available to businesses to help absorb and offset the extra cost of these changes. If you are affected by or worried about the changes and the increased wage and NIC costs, please contact Peter Davies on 020 7417 0417.