Mr M Palanki v The Big Table Group Ltd

Claire Treacy, Senior Associate

The Employment Tribunal determined whether tips usually received by a front of house member of staff working at a Las Iguanas restaurant should be included in the employee’s holiday pay. Whilst this case focusses on tips earned in the hospitality industry the principles determined in this case impact all businesses that make payments that are only earned when workers are working. For example, overtime, travel allowances, commission and bonuses.

Mr Palanki lodged claims at the Employment Tribunal for unpaid holiday pay and the unauthorised deduction of wages. He was successful with both of his claims.

Las Iguanas charges its customers a discretionary 12.5% service charge, which is then paid out to employees at the same time that employees receive their wages. The service charges are distributed according to a tronc scheme operated by the restaurant’s general manager. Wages and tronc payments are detailed separately but are on the same payslip. The service charge is payable by customers only via card payments.

Mr Palanki argued that the tronc payment he would usually receive when working should be taken into account when calculating his average weekly pay for the purposes of holiday pay.  This meant that Mr Palanki was claiming that he should have been paid an additional £5,444.40 in holiday pay.

The law:

To calculate a week’s pay to determine what holiday pay an employee should receive employers must:

1. Determine an employee’s “normal working hours”. In the hospitality industry, like with many other industries, employees will often not have “normal working hours”. Therefore, their “normal working hours” must be calculated by assessing what they have been paid on average in the previous 52 weeks.
2. The second stage is then for an employer to determine what pay is payable. The legislation unhelpfully does not confirm this. However, it is well accepted that basic pay and contractual bonuses and allowances should be considered here. Other payments paid to employees like overtime, tips, non-contractual bonuses and commission payments often fall into a grey area and it is this part of the legal test that the Employment Tribunal had to determine when deciding if payment of Mr Palanki’s tronc entitlement should be included in his holiday pay.

The purpose of our laws on holiday pay is for workers to be in a comparable financial position whilst they are taking holiday as they would be in were they working. This is so that workers are not deterred from taking holiday.

With this in mind it is adopted into our law that all payments “payable by the employer to the employee” must be included in the calculation of holiday pay as should all payments “intrinsically linked” to the performance of a worker’s duties. The Employment Tribunal had to determine whether Mr Palanki’s tronc payments fell into this criteria.

The decision:

It was determined by the Employment Tribunal Judge that, on the basis of the facts of this case and considering the particular system in place at Las Iguanas, the tronc payments Mr Palanki received were ‘payable by the employer to the employee’. The important facts of this case which the Judge focussed on when reaching this conclusion were:

1. That due to the wording of Mr Palanki’s contract of employment and Las Iguana’s Tronc Policy Mr Palanki did have a contractual entitlement to receive tronc payments. Whilst his contract of employment said that employees do not have a contractual entitlement to receive any payment in terms of tips and other gratuities, it made it clear that service charges would be paid to employees that participated in the company’s tronc scheme.
2. Despite there being a troncmaster the tronc payments were payments payable by the employer because Las Iguana’s troncmaster did not have a separate PAYE scheme, nor did she have her own bank account so the tronc money was paid by Las Iguanas and tax was deducted on a PAYE basis by Las Iguanas.

The Employment Tribunal judge also had to consider whether the tronc payments paid by Las Iguanas are “normal remuneration” by assessing whether the payments are “intrinsically linked to the performance of tasks” which Mr Palanki is required to carry out under his contract of employment. When determining this the Judge considered:

1. How much the tronc payments usually paid to Mr Palanki were. It was found that they sometimes were up to 50% of his basic pay so Mr Palanki would be deprived of a considerable amount of pay when he took holiday if tronc payments were not included in his holiday pay.
2. On the facts it had been determined that Mr Palanki was contractually entitled to tronc payments and thus they were “intrinsically linked” to the performance of his role.

Key take-aways:

• This is an Employment Tribunal decision only as opposed to an appeal court decision. It is not therefore legally binding on other courts. However, the importance of this case must not be overlooked as it demonstrates the Tribunal’s willingness to assess all of a worker’s pay and to make sure workers are not financially worse off when the take holiday.
• Each case will be fact-sensitive depending on how tips/ service charges/ tronc payments/ gratuities, as well as overtime, commission, travel allowances etc are paid and earned by workers.
• Businesses that make payments that are only earned when workers are working – like tips, overtime and bonuses – should seek advice on their processes, policies and contracts for making these payments so as not to fall foul of legislation.
• Since October 2024 employers that pay qualifying tips to their workers are required to have a written tipping policy and workers must be paid a fair share of qualifying tips. To find out more about this requirement please read our previous article – Preparing for the ‘Tipping Act’ | Kuits Solicitors.