EN
HR Legal

Tips on employees’ tips

logo
Legal news
calendar 14 May 2023
globus Norway

In a recent case, two companies had set off their expenses against the employees’ tips. The set off was made because of the companies’ increased costs for taxation and administration. The Norwegian Supreme Court found the set off unlawful because the tips were the employees’ property.

Employees at two hotels kept the whole amount of the tips received from customers. The employees were responsible for reporting their tip income to the tax authorities. However, in 2019, new rules on tips entered into force. After this, companies were responsible for keeping an overview, reporting the individual employees’ tip income, withholding tax, and paying employer's national insurance contributions for the tips.

Because of the new rules, both companies’ expenses for national insurance contributions and administrative costs increased. In response to this, both companies changed their practice based on their managerial right. Before the tips were paid out to the employees, the companies now set off the new expenses against the employees’ tips. Because of this, the employees received a smaller portion of the tips than before.

It is not the gift, but the thought that counts

The court concluded that the companies could not set off against the employees’ tips. This was because the tips were the employees’ property, not the companies’.

The court found that customers’ tips were given to the employees, not the companies. As such, tips had to be considered a gift to the employees, and the companies had no claim on the tips.

In addition, companies could not set off expenses against the employees’ tips based on the managerial right as tips is a source of income. Although tips cannot be considered salary, there are similarities, as tipping will benefit both the companies and the employees. As a salary-element, tips have special protection against the companies’ managerial rights. Any set off against the employees’ tips would therefore require consent.

IUNO’s opinion

This case clarifies the limits to the managerial right in relation to employee tips. Other cases have shown that companies have the managerial right to deny tips altogether. However, companies cannot set off expenses against the tips. This is because the customers’ tips are intended as a gift for the employees, not the companies.

In response to tips, companies are therefore left with the options of denying tips altogether, accepting the increased costs, or getting the employees’ consent to set off. IUNO recommends that companies discuss any consent with the employees. Employee consent will also require a written agreement.

[The Supreme Court’s judgement of 20 April 2023 in case HR-2023-728-A]

Employees at two hotels kept the whole amount of the tips received from customers. The employees were responsible for reporting their tip income to the tax authorities. However, in 2019, new rules on tips entered into force. After this, companies were responsible for keeping an overview, reporting the individual employees’ tip income, withholding tax, and paying employer's national insurance contributions for the tips.

Because of the new rules, both companies’ expenses for national insurance contributions and administrative costs increased. In response to this, both companies changed their practice based on their managerial right. Before the tips were paid out to the employees, the companies now set off the new expenses against the employees’ tips. Because of this, the employees received a smaller portion of the tips than before.

It is not the gift, but the thought that counts

The court concluded that the companies could not set off against the employees’ tips. This was because the tips were the employees’ property, not the companies’.

The court found that customers’ tips were given to the employees, not the companies. As such, tips had to be considered a gift to the employees, and the companies had no claim on the tips.

In addition, companies could not set off expenses against the employees’ tips based on the managerial right as tips is a source of income. Although tips cannot be considered salary, there are similarities, as tipping will benefit both the companies and the employees. As a salary-element, tips have special protection against the companies’ managerial rights. Any set off against the employees’ tips would therefore require consent.

IUNO’s opinion

This case clarifies the limits to the managerial right in relation to employee tips. Other cases have shown that companies have the managerial right to deny tips altogether. However, companies cannot set off expenses against the tips. This is because the customers’ tips are intended as a gift for the employees, not the companies.

In response to tips, companies are therefore left with the options of denying tips altogether, accepting the increased costs, or getting the employees’ consent to set off. IUNO recommends that companies discuss any consent with the employees. Employee consent will also require a written agreement.

[The Supreme Court’s judgement of 20 April 2023 in case HR-2023-728-A]

Receive our newsletter

Anders

Etgen Reitz

Partner

Sofie

Aurora Braut Bache

Managing associate

Similar

logo
HR Legal

14 June 2024

Equal rights for agency workers covered by collective agreements

logo
HR Legal

13 June 2024

Gender changes protected against gender discrimination

logo
HR Legal

6 June 2024

From Russia with love

logo
HR Legal

24 May 2024

Vegan rights on the menu

logo
HR Legal

16 May 2024

Too little rest did not fly

logo
HR Legal

15 May 2024

Summertime, and livin’ is not easy

The team

Alexandra

Jensen

Legal advisor

Anders

Etgen Reitz

Partner

Caroline

Thorsen

Junior legal assistant

Cecillie

Groth Henriksen

Senior associate

Johan

Gustav Dein

Associate

Julie

Meyer

Senior legal assistant

Kirsten

Astrup

Managing associate (on leave)

Maria

Kjærsgaard Juhl

Legal advisor

Rikke

Grønlund Holm

Senior associate

Sofie

Aurora Braut Bache

Managing associate

Søren

Hessellund Klausen

Partner