Workers shouldn't have to pay tax on their tips, according to a leading Irish recruitment agency.
Excel Recruitment has called on the government to introduce a tax-free allowance on tips as new legislation on tipping comes into force from Thursday.
The Payment of Wages (Amendment) (Tips and Gratuities) Act 2022 introduces new rules protecting worker's tips, including making it illegal for employers to use tips or gratuities to make up basic wages.
Excel Recruitment have called on the government to go "one step further" and "boost the incomes of lower-paid earners in sectors such as beauty and hospitality" by making tips tax-free.
While the recruitment firm said they welcomed the new legislation, they pointed out that removing tips — or at least some tips — from the tax net could encourage workers back into the hospitality sector, as well as other lower-paying sectors.
Shane McLave of Excel Recruitment said the legislation was "laudable", but that the Government should have gone a step further.
"All tips received by staff are currently taxable. However, given the often low-paid nature of the work – and the huge staff shortages which the hospitality sector is currently grappling with, more people could be encouraged to work in the sector if tips were not taxable – or if they could earn a certain portion of them tax-free," he said.
"A case could be made for the fact that PAYE employers are already allowed to gift employees up to €1000 in tax-free vouchers per year – this however is unlikely to impact the vast majority of bar staff, wait staff, hairdressers, beauticians and other professions who receive tips.
Dropping taxes on tips could be a very "progressive" move, Mr McLave said. Once a product or service has been paid for, the amount of tax relevant to that product of service has been covered.
“The point of the Act is to protect the people who have worked hard to earn the tips, gratuities and service charge payments given by consumers," Mr McLave added.
"Those working in the food, retail, and hospitality industries are often on lower wages and some may be dependent on subsidizing their wages with rent allowance, the Housing Assistance Payment (HAP), or the Family Income Supplement (FIS) with tips being at their highest around the Christmas season, and so many hospitality and other workers relying on those tips to make ends meet, there would be a merit in sheltering some of those tips from tax – particularly against the backdrop of the cost-of-living crisis.
"The implementation of the Act is due to be reviewed in 12 months’ time, but we would hope that greater consideration is given before this date," he added.
The recruiter also called on tips to be distributed equally amongst staff.
