Who Owns Tips? Hospitality Workers and The Distribution of Customer Gratuities

Abstract

The tipping of hospitality workers by customers is an increasingly common custom in Australia. Tips are a substantial (though unquantified) part of the income of hospitality workers. Such workers are often casual and vulnerable young employees. Tipping occurs in a tripartite relationship between the employer/business operator, the customer and the worker. It is almost completely unregulated by the labour law instruments of awards and enterprise agreements.

Who owns tips? While customers may reasonably assume that service workers will receive all the tips they leave, either individually or as a share of a common fund (the tips jar), the legal ownership of tips is uncertain. The common law position is that the employer owns tips, on the basis that tips are monies received by employees arising from their employment. However if the employer sets up a system for sharing tips between employees which involves an independently administered fund (the tronc), tips are then owned beneficially by the employees. Express or implied terms of the employment contract may also provide that employees are entitled to tips, either individually or jointly. In this article we explore common tipping distribution practices in Australia, the legal ownership of tips, and the potential for regulatory intervention.

Keywords: tipping, hospitality industry, implied terms

JEL Classification: J41, K31, L81