HMRC wins minimum wage court battle


HMRC wins minimum wage court battle

Bar and restaurant workers have been given a helping hand by the Court of Appeal in their fight for fair pay. The court ruled in HM Revenue & Customs' favour by upholding current national minimum wage legislation relating to tips, gratuities and discretionary service charges in the case of Annabel's restaurant and night club and others.

The judgment confirmed that employers must pay their staff at least the national minimum wage regardless of any tips, gratuities, service charges or cover charges, providing they are not paid by the employer to workers through the employer's payroll. This means that Annabel's and others must now pay over £125,000 in arrears to its workers.


HM Revenue & Customs (HMRC) had argued that payment via a “tronc” (an independent distribution scheme) does not count towards the national minimum wage. The Court determined that where restaurant or bar service charges are paid by the customer to the employer, but are then paid into a “troncmaster's” bank account for distribution in accordance with a tronc scheme agreed between the troncmaster and workers, the sums distributed to workers are not "paid by the employer" and so cannot be included in national minimum wage pay.

Rt Hon Stephen Timms, Financial Secretary to the Treasury said: "The government's priority is to ensure that all workers are paid at least the national minimum wage. I am extremely pleased that the court has recognised HMRC's commitment to ensuring that tips are correctly and fairly distributed to the people who earn them. This is good news for bar and restaurant workers across the UK."


In June 2008 HMRC won an Employment Appeal Tribunal against the restaurant/club Annabel's and others. The case involved the calculation of national minimum wage pay where an independent tronc scheme was in operation.

Troncs are a system of pooling and distributing service charges, tips and gratuities to staff in the service industries. Under specific circumstances, payments made as tips, gratuities, service charges and cover charges may count towards national minimum wage pay. However HMRC argued that tips, gratuities and voluntary service charges paid to workers by a troncmaster via a tronc did not count towards national minimum wage. Annabels and others were given leave to appeal against the ruling.

The case was heard at the Court of Appeal on 15 January 2009. The Court found in HMRC's favour and the judgment was handed down on 7 May 2009. The judgment is legally binding and sets a precedent for other cases.

Want to know more?

For details of the HMRC case, click here.

The government has announced that using tips to make up staff pay to minimum wage levels will be outlawed from 1 October 2009. For more information on the government's plans, click here.