How to handle trips and gratuities for your staff

Tips from customers are one of the major benefits of working in certain industries. Waiters, taxi drivers, baristas, and valets all commonly receive tips on top of their basic wages.

It’s important to understand the different types of tips and how to manage them to ensure your staff receive them fairly.

In this guide, we’ll discuss what tips and gratuities are, when you’re allowed to withhold them and what Australian law says about your rights to them.

What are tips and gratuities?

Tips and gratuities are voluntary payments left by customers to your employees. Tips are typically left after an outstanding service has been provided, for example, a server in a restaurant.

However, as an employer, you need to be aware of the rules and guidelines that surround tips and gratuities. According to the ATO, tips and gratuities received by employees are classed as income and must be declared.

What are the different types of tips and gratuities?

There are two types of tips that you need to be aware of:

Controlled tips

These are tips and gratuities that are managed by the employer before reaching employees. Examples of these are:

• Automatic service charges that are part of the total bill

• An employer distributing the tips equally to employees. This is known as tip pooling

• Tips applied to credit or debit cards that are given electronically to employees

Direct tips

Direct tips are paid directly to the employee. Examples of these are:

• A cash tip that is given to the employee directly by the customer

• Tip pools in which employees handle the distribution

• Tips are given to credit or debit cards that are returned as cash to your employees

Is it illegal to take tips from employees?

Unlike some countries where legislation explicitly governs tip ownership, Australia does not have specific laws that dictate whether tips belong to the employees directly or to the employer who may then distribute them as they see fit.

The division of tips among employees is generally left to the discretion of the employer or the establishment's policies. However, it is essential for employers to ensure that the distribution of tips is fair and transparent and does not discriminate against any employee.

While it is common for those who are directly serving customers to receive a larger portion of the tips, considerations can also be made for kitchen staff and others who contribute to the overall service experience.

Employers should ideally have a clear, agreed-upon policy regarding tip distribution to avoid disputes and ensure fairness. It's important to note that tips do not substitute legal wage requirements under the Fair Work Act 2009, and all employees must still receive their minimum entitlements as per their award or agreement.

Get expert advice on staff tips and gratuities from BrightHR

If you need assistance with employee pay, or the tips and gratuities received by your business, BrightHR has a range of tools that can help.

Our employment relations advisers are on hand 24/7 to answer any of your burning questions on a case-by-case basis. Plus, our document library, BrightBase, is filled with templates, guides and policy’s to ensure your business has a policy in place, if you choose to provide clarity to both staff and managers. Helping you deal with any problems before they arise.

Book a product demo or call 1 300 029 198 today to discover how our award-winning HR software can transform the way you approach people management.