Managing Employee Tips in Ireland: A Comprehensive Guide for Employers

As summer approaches and Ireland's service, hospitality, and tourism sectors gear up for their busiest season, many businesses will be hiring contract or seasonal workers. Amid this flurry of activity, it's essential for employers to stay informed about their obligations regarding employee tips and gratuities. 

In Ireland, the Payment of Wages (Amendment) (Tips and Gratuities) Act 2022 provides clarity and structure for the management of employee tips, ensuring fairness and transparency for both employers and employees. 

At SD Worx Ireland, we understand that managing payroll in these fast-paced sectors can be complex. We have a plethora of experience in helping our customers in the hospitability sector manage this challenging period on their calendars, and so, we've put together this guide to help you understand the key provisions of the law and how it affects your business. 

In this blog, we will explore the key aspects of this legislation, offer insights from a payroll perspective, and provide practical tips on how to manage employee tips effectively. 

Related Blog: Sun, Fun, and Payroll Runs: Managing Seasonal Payroll with Ease This Summer

One of the primary aspects of the legislation is the handling of electronic electronic tips. These tips typically come through credit card payments, mobile apps, or other digital transactions. The law mandates that employers must distribute these tips fairly among employees, with a key restriction: employers cannot retain any portion of the electronic tips unless there is a legitimate business reason (such as processing fees or taxes). This ensures that employees receive the full benefit of tips provided by customers, regardless of whether they are paid in cash or electronically. 

What Employers Need to Do: 

• Fair Distribution: Employers must develop a clear method for distributing electronic tips among employees. 
• Transparent Records: Employers should keep accurate records of all electronic tips received, detailing the total amount and how it was shared among staff. 

 

Under the legislation, tips and gratuities are considered additional earnings and cannot be used to make up for any shortfall in wages. In simple terms, tips are not to be seen as part of an employee's basic wage. Employers must ensure that the tips they receive from customers are distributed separately from the agreed-upon wages. In Ireland, the minimum wage is €13.50 per hour for workers over the age of 18, and must be provided, separate from any earnings accrued from tips. 

See also: National Living Wage Guidelines

What Employers Need to Do: 

• Separate Wages and Tips: Maintain clear separation between tips and employees' wages in payroll systems. 
• Transparency in Contracts: Employers should review employee contracts to clarify that tips are an additional source of income and not a substitute for wages. 

Many businesses, particularly in the hospitality sector, add a service charge to customers' bills. Under the law, if a service charge is specified on a customer bill, it must be treated the same as tips and gratuities, meaning it should be shared with the employees providing the service. 

What Employers Need to Do: 

• Clarify the Definition of Service Charges: Ensure customers are made aware that any service charge added to their bill will be passed on to employees. 
• Transparency in Billing: Clearly display the amount of service charge on bills or receipts so customers understand where their payment is going. 

Related Guide from WRC: What are tips and gratuities?  

Since 2022, Employers are required to provide employees with a written statement outlining the following: 

• The total amount of tips, gratuities, and service charges received. 
• The amount each employee received from the distribution. 
• The method of distribution (e.g., pooled or individual). 

This statement must be provided to employees within 10 days of the distribution. 

What Employers Need to Do: 

• Recordkeeping: Maintain accurate records of tips and service charges received. 
• Provide Written Statements: Issue written statements within the stipulated 10-day period. 

Employers must display their tips and gratuities policy in a prominent location in the workplace. For businesses that operate online, this policy should be clearly visible on the website or app where customers make payments. 

What Employers Need to Do: 

• Write and Display a Policy: Create a clear policy outlining how tips and service charges are handled. 
• Communicate with Employees: Ensure that staff are aware of the policy and can easily access it when needed. 

From a payroll standpoint, managing tips and gratuities requires careful attention to detail to ensure compliance with the law and avoid issues during audits. Here are some practical steps and best practices for managing tips: 

Tips for Employers on Managing Tips 

• Develop a Clear Tip Distribution Method: Decide whether tips will be pooled or individually assigned, and ensure that the distribution method is consistent.  
• Separate Tips and Wages: Keep tips separate from wages in your payroll software. Tips should be recorded as additional earnings, ensuring they are not part of the employee's base pay. 

• Tax Considerations: Tips, whether in cash or electronic form, are still subject to income tax, PRSI, and USC. Employers are required to deduct the appropriate taxes from employees’ tips, just as they would from their regular wages. If a customer pays a tip electronically, it must be processed through payroll. If a customer pays a tip in cash directly to an employee, the employee is responsible for declaring and paying taxes on it. 

• Record Transactions Accurately: For every tip or service charge, record: 
• The total amount received. 
• The amount distributed to each employee. 
• The method of distribution. 
• Ensure Compliance: Regularly review your business's tip policies and practices to ensure they comply with the legislation. This includes revisiting employee contracts and the display of your tips policy. 

 

This blog provides general information and should not be construed as legal advice. For specific legal concerns, consult with a qualified professional.