Annabel's (Berkeley Square) Ltd and others v Commissioners for Her Majesty's Revenue and Customs [2009] EWCA Civ 361 CA

national minimum wage | troncmaster | tips

The Court of Appeal has upheld an Employment Appeal Tribunal (EAT) decision that tips and service charges distributed by troncmasters did not count towards the national minimum wage.

The employers were private members' clubs and restaurants. Employees were paid basic wages through the employers' payrolls. Tips and service charges were collected by the employers and handed to troncmasters who then distributed them to employees. Each troncmaster operated a payroll, made deductions via PAYE and issued payslips. Without the tips and service charges the basic payments made to the employees did not meet the national minimum wage.

The Commissioners for Her Majesty’s Revenue and Customs (HMRC) served enforcement notices on the employers requiring arrears of the national minimum wage to be paid, an action that was overturned by an employment tribunal. However, the EAT allowed HMRC's appeal against the tribunal decision, holding that the sums distributed by the troncmaster were not "paid by the employer to the worker" under reg.30 of the National Minimum Wage Regulations 1999 (SI 1999/584). Therefore, the tips and service charges did not count towards the national minimum wage.

The Court of Appeal upheld the EAT decision. The tronc established for the allocation of the tips and gratuities to employees was administered by a troncmaster. It was the troncmaster, not the employers, who determined what money should be paid out of the tronc to the employees. For PAYE purposes, the troncmaster was required to make deductions before payment and to account to HMRC. For national insurance purposes, the troncmaster was treated as independent of the employers and there was an exemption from national insurance contributions. On the ordinary and natural meaning of reg.30, the payments given out of the tronc were not "paid by the employer to the worker". They were paid by the troncmaster out of the tronc account operated solely by him or her. The employers ceased to have any title to, or control of, the money once it had paid it into the tronc bank account.

Case transcript of Annabel's (Berkeley Square) Ltd and others v Commissioners for Her Majesty's Revenue and Customs (on the BAILII website)

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