National Minimum Wage (Tips) (Hansard, 15 July 2003)

§ Mr. Michael Connarty (Falkirk, East)

I beg to move, That leave be given to bring in a Bill to amend Regulation 31 of the National Minimum Wage Regulations 1999 so that amounts paid by customers by way of service charge, tip, gratuity or cover charge whether paid to employees through the payroll or by any other method are excluded from payments taken into account as remunerations contributing to the National Minimum Wage.

I thank the Under-Secretary of State for Trade and Industry, my hon. Friend the Member for Bradford, South (Mr. Sutcliffe), for his invitation to have a meeting on this issue, and his predecessor, now the Minister for Lifelong Learning, Further and Higher Education, for continuing to encourage me to explore the problems that exist with regard to the national minimum wage and tips.

The question is: when a customer gives a tip, who is it for? Customers, and I think all hon. Members, believe that a tip is for the individual waiter or hotel staff member whom they give it to or leave it for or that it will be shared through a pooled tip system—we would call such a pool a kitty in Scotland, but it is officially called a tronc—to be shared among the staff. Customers believe that in the UK, where we have a national minimum wage by law—I think that, at £4.10, it is still too low, but it will be increased to £4.50 in October—the tip will make a small addition to that sum. It will not do so if it is paid on a credit card, in a cheque, through a pooled system or tronc and through, the payroll. Even if a customer gives cash, if the hotel or restaurant runs a tronc or pooled tip system divided up by a tronc master, who tends to be the head waiter—I was told this morning about a headwaiter who took 80 per cent. of all the tips before distributing the rest—it may still be used to pay towards the minimum wage.

I often hear people say "It wasn't meant to be like this"—I use the phrase myself sometimes when I look at Government policy—but it was. In the National Minimum Wage Regulations 1999, regulation 31(1)(e) states that service charge, tips, gratuities or cover charge that is not paid through the payroll", are excluded from payments towards the minimum wage, but that means that other tips are counted towards it. The consequences for 1.8 million people working in the service industry, 67 per cent of whom are women and 40 per cent. of whom are under 25, are significant: some 1.8 million people may not be getting what they think they should get.

The problem was highlighted in the case of Nerva and others v. RL&G Ltd., which involved two London restaurants—Paradiso e Inferno in the Strand and Trota Blu in Leicester square. The case was brought in 1995, before the national minimum wage was introduced, but was concluded only last year at the European Court of Human Rights. The High Court ruling said that ownership of tips through cheque and credit card first passes lo the employer". as such payments will be made in the name of the establishment. That was incorporated into the National Minimum Wage Act 1998 and the 1999 regulations. The case of Nerva and others v. the UK was lost in 2002 at 175 the European Court of Human Rights because we had written that injustice into the law of this land. That is why it was thrown out.

An excellent article by Philip Inman in The Guardian on Saturday 24 November 2001 revealed that even cash tips are not going to staff. It said that, if the establishment in question operated a tronc or pooled tip system paid through the payroll, it did not go to the staff on top of their minimum wage. The article cited the example of the Sanderson, a well-known London hotel where rooms cost from £240 to £2,000 a night for the main suite. That hotel paid £2.50 an hour and topped up the amount to the minimum wage from tips through the payroll. Popular restaurant chains such as Caffe Uno and Garfunkels operate the same tronc system.

This Bill would ensure that all additional payments made by customers as tips, gratuities, service or cover charges have to be paid in addition to the minimum wage by excluding tips paid by any method from minimum wage calculations. It would also reduce the complexity of enforcement, because, as I told the former Minister, enforcement officers would not have to find out whether tips are paid towards the minimum wage. Everyone working in an establishment would receive the minimum wage. Tips above that would be a matter for them, the tax office and their employer.

The Bill would deliver the guaranteed national minimum wage for the 1.8 million people who are probably the most vulnerable workers in this nation, as was the Labour's Government's intention when they said that they would introduce the original Bill. It would ensure that, when tips are paid and by whatever method, they are for the staff as a little extra for themselves and not their employer.

I commend the Bill to the House.