Wages : Tips part of national minimum wage

Revenue and Customs Comrs v Annabel's (Berkeley Square) Ltd: [2009] EWCA Civ 361

CA: Mummery, Rimer, Sullivan LJJ: 7 May 2009

Waiters and bar staff employed by the respondent employers received money from service charges included in customers' bills in addition to their basic wages. These were distributed via a "tronc" system, whereby the charges were paid by the employer into its bank account and then into a designated bank account held by a senior manager, acting as troncmaster, who distributed them to the staff according to a points-based formula depending on length of service.

The employers operated payroll systems for the payment of basic wages and the troncmasters operated parallel systems for tronc money from which tax was deducted on a PAYE basis. The employees' basic wages were less than the national minimum wage, and the revenue issued enforcement notices, requiring the employers to pay employees at a rate at least equal to the minimum wage.

On appeal by the employers, an employment tribunal rescinded the notices on the ground that the payments made through the tronc system were to be taken into account when calculating the employee's wage, since they were "paid by the employer", and so were part of the employees' remuneration for the purposes of regulation 30 of the National Minimum Wage Regulations 1999.

The Employment Appeal Tribunal, allowing an appeal by the revenue, held that at the point of payment the troncmaster held the money on trust for the employees, so that it was not "paid by the employer" and did not count for the purposes of the national minimum wage.

The employers appealed.

The Court of Appeal held:

While the employers initially owned the tips and gratuities paid to them by cheque or by card, they ceased to have any legal or beneficial title to or control of the moneys once they had been paid into the tronc bank account, having delegated exclusively to the troncmaster the determination of the scheme, the distribution of the moneys in accordance with the scheme and accountability for deducting income tax. At the point of payment what was paid to the employees by the troncmaster was money forming part of a fund constituting in equity the employees' commonly owned property.

Accordingly, the payments made by the troncmaster were not "paid by the employer to the worker"
within the meaning of regulation 30(a) of the National Minimum Wage Regulations 1999 and so did not count as part of the employees' pay for the purposes of the national minimum wage.

The appeal was dismissed.