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New law on the use of tips to boost low pay will have knock-on effect on payroll systems

Employers in the hospitality sector have been warned not to be caught out by new Government legislation, in which the practice of using tips to boost staff pay to National Minimum Wage levels has been prohibited.

New laws have made it illegal for bars, restaurants and hotels to use tips to make up minimum pay. And the changes come into effect as the National Minimum Wage has risen by 7p an hour to £5.80. For 18 to 21 year-olds, the rate has increased by 6p to £4.83 per hour.
But, according to the Institute of Payroll Professionals (IPP), many organisations need to consider the implications the new legislation could have on their business and, in particular, on the business payroll process.
For some employers compliance could prove costly as payroll systems may require intervention from the payroll provider, possibly creating a development cost. Likewise changes will be also need to be made to employment contracts to reflect the change in wage rate.

Those employers who used tips to make up the National Minimum Wage were required to keep records of what was paid to their employees in order to ensure that they received the rate that applied to their age group. And the IPP claims there will be some employers who pay the highest rate regardless of age and for them the increase in cost could be significant.
Lindsay Melvin, CEO of the IPP, said: "Getting the new arrangements on tips properly implemented must become a top priority for employers in this industry.

"Workers who don't have a written contract containing specified information and who are employed for one month or more have a statutory right to receive a written statement of employment particulars, including ‘the scale or rate of remuneration or the method of calculating remuneration'.

"On top of this, employers will also need to amend their payroll systems to take into account National Insurance Contributions, as this will need to be applied to employees' new wage rates."