New Irish law to tax tips in hospitality sector

The law also requires restaurants to display their staff tip-sharing policy so that customers can understand it

Yesterday, Ireland’s new tipping laws came into force with a bid to both institutionalise and introduce fairer labour practices in the hospitality sector. The law aims to make tipping accountable and transparent, both for customers and authorities, while the government plans to collect a 20% VAT on them.

This is especially true for so-called ‘service charges’, a common practice in restaurants. Under the new regulations, those should be payable by electronic means and distributed solely among staff. The Payment of Wages Act also gives employees the legal entitlement to receive tips.

The good side of the laws – more transparent tipping practices

According to the new Payment of Wages Act, restaurant owners will be required to display their tipping policy in such a way that customers can see it. This means that whether there is a tiered system or staff split tips evenly, customers and authorities need to be aware.

Additionally, with the new regulations restaurant owners and managers would not be able to dip in the proverbial tip jar, while all staff would have something to fall back on if they have not received their tips. The new law also requires that this money be paid to workers in a fair manner.

It will also make it illegal for tips, gratuities, and service charges to make up part of an employee's basic wages, which is a big step up for Ireland’s lowest-paid workers in the hospitality sector.

The drawbacks

Officials have said that they will reassess the policy in a year to determine its effectiveness and issue amendments if necessary.

The Chief Executive of the Restaurants Association of Ireland explained that the policy could result in many workers would receive less pay due to the policy, at the end of the day, the RTÉ reported. This is because their tips are now subject to the value-added tax of 20% and in fact many have tried to petition the government to make them tax-free, as a monetary expression of gratitude.

Additionally, considering the sector of low-paying hospitality is currently experiencing a staff shortage, non-taxable tips could be a draw for many, unveiling a potential for higher urgings.

The Irish Congress of Trade Unions has, however, expressed support for the law, citing the fact that 20% out of 100% is more than 100% of zero, as the policy come with solid legal protection for low-income earners.