New requirements regarding the treatment of tips and gratuities came into effect on 1 December 2022. GroForth’s Nikki Johns summarises the key changes.
In the past, the tips and gratuities given to employees by satisfied customers were often in cash and did not affect payroll. While tips and gratuities have always been taxable, it was up to employees to declare them in their tax returns. However, electronic payments are now widely used and new legislation specifies that the tips and gratuities received by workers in certain sectors will in future have to be distributed fairly by employers and managed through payroll.
The new requirements, introduced by the Payment of Wages (Amendment) (Tips and Gratuities) Act 2022, came into effect on 1 December 2022. The sectors affected include hotels, restaurants, cafes, bars, and hair and beauty salons to name just a few. (For the full listing, see the Workplace Relations Commission Information Guide)
Tips & Gratuities — Key measures for employers
The legislation introduces a number of requirements that will impact employers and payroll operators. The key changes relate to the distribution of electronic tips and gratuities.
- Employers must clearly display their policy on how card and cash tips, gratuities and mandatory charges are treated. Where a business uses contract workers, the policy regarding tips and gratuities for these workers must also be displayed. Platform businesses, whose workers are not direct employees but whose work attracts tips and gratuities must display a notice stating whether and how tips, gratuities and service charges are distributed amongst contract workers and the amounts distributed.
- Tips and gratuities cannot form part of an employee’s basic pay.
- Employees have a legal entitlement to receive tips and gratuities paid in electronic form and employers must distribute these payments in a fair and transparent manner. In the event of complaints arising, the Workplace Relations Commission will assess ‘fairness’ taking into account factors such as seniority/experience, hours worked, sales generated, agreements or consultations that have taken place between the employer and employee and whether the employee is full or part time. For further details, see the Workplace Relations Commission website.
- Employees must be given a statement no later than 10 days after tips/gratuities have been distributed showing the amount of tips obtained and the portion paid to the individual employee
- Charges such as a ‘service charge’ that could lead a customer to believe that the charge is going directly to employees, must be distributed to staff as if they were tips or gratuities received by electronic means.
As the Payment of Wages (Amendment) (Tips and Gratuities) Act 2022 is already in force, and failure to comply can lead to fines, it’s important that employers make any necessary changes to their policies and payroll procedures without delay. GroForth clients who require assistance should email a member of our team.