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The Employment Appeal Tribunal has ruled in HMRC's favour by supporting National Minimum Wage (NMW) legislation relating to tips.

In October 2007 HMRC lost an Employment Tribunal appeal case against the restaurant/club Annabel's. The case involved the interaction between National Minimum Wage and troncs. Troncs are a system of pooling and distributing tips to staff in the service industries. Under specific circumstances payments made as tips may be included as part of the payroll by the employer and count toward NMW. However HMRC argued that tips paid via a tronc should not count towards national minimum wage. HMRC were given leave to take the case to the High Court.

The decision in the case of Annabel's restaurant and night club is good news for the UK's restaurant and bar workers. Broadly, it means that employers have to pay their staff at least the NMW regardless of any tips, gratuities, service or cover charges, so long as the tips are not paid directly through the employer's payroll.

The Judge 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 employees, the sums so distributed to employees are not "paid by the employer" for the purposes of being included in any National Minimum Wage calculation.

Denise Gaston of HM Revenue & Customs said:

"Our priority is to ensure that all workers are paid at least the National Minimum Wage. We are very 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."

A spokesperson for the Department for Business said:

"It is essential that all UK workers receive the pay they are entitled to and that everyone earns at least the National Minimum Wage. Equally, it's important that tipping is fair and we are already examining what options are available to help ensure transparency."

Annabel's now have 14 days to seek permission to appeal the Judgment.

Anyone who thinks they are not being paid National Minimum Wage rates should contact the confidential NMW Helpline on 0845 6000 678.