The Act brought into law some important guidelines for salon owners and protections for salon employees with regard to tips:

1. The law clearly defines a ‘tip or gratuity’ as a payment assumed by the customer to be kept by the employee or shared among employees. This includes voluntary payments made to employees or the employer, such as cash or card tips, discretionary or mandatory service charges, or tips through cashless platforms.
2. The allocation of tips that are collected by the employer must be dealt with fairly and transparently.

Proper records must be maintained and relevant taxes paid on tips that are collected and distributed by the employer.

The law covers any tips and service charges that are ‘employer-received’  – i.e. the employer collects the tips and has a hand in allocating and distributing them among employees. Typically this means tips and service charges paid by card – but if the employer also has control over collecting and distributing cash tips (like having a tip jar), then the act will cover these too.

The Act was enacted on 20 July 2022 and came into effect on 1 December 2022.

Both directly-employed staff and ‘platform workers’ i.e. self-employed staff who provide services related to the salon are entitled to a share of tips.

While the Act doesn’t define a specific formula for fair allocation, it does lay out some general principles:

• Employers must consult with their employees when introducing a policy on how tips are distributed. This includes any significant changes to an existing policy.
• When distributing tips, employers can consider various factors such as the seniority or experience of employees, the value of sales or revenue generated, the number of hours worked, the nature of the employment contract (full-time or part-time), and the employee’s role in service delivery.
• The Act requires employers to provide a statement to employees showing the amount of electronic tips obtained in a period and the portion paid to each employee.

There are no specifics on the timeframe in which tips must be paid out to employees, but this should be covered in the consultation process with employees and included in your tipping policy documentation.

No – this is one of the core elements that spurred the introduction of The Act. The law explicitly prohibits employers from using tips or gratuities to make up for employees’ basic wages. This ensures that tips are an addition to, not a substitute for, contracted pay.

Employers are required to maintain certain policies and records related to tips and gratuities under the law:

Policy on Tips Distribution:

• Employers must establish a clear policy on how tips and service charges are distributed among employees.
• This policy should detail whether tips are pooled and how they are divided among staff. It should include both cash and electronic tips.
• The policy must be consulted with employees, and they should be informed of any significant changes.

Display of Tips and Gratuities Notice:

• Employers are required to display a notice that clearly outlines their policy regarding the distribution of tips, gratuities, and service charges.
• This notice should inform customers and employees whether the service charges are distributed as tips to employees, and if so, how this distribution is managed.

Record Keeping:

• Employers should keep records of the total amount of electronic tips received and how these are distributed to employees.
• For electronic tips, employers are required to provide a statement to employees within a specified period (typically within the payroll cycle), detailing the amount of tips distributed to them.
• While there’s no specific requirement for record-keeping of cash tips handed directly to employees, maintaining records could be beneficial for transparency.

• If tips are allocated by you, the employer, and you are not paying the relevant taxes based on how you handle tips (such as PAYE and PRSI), you are at risk of an audit by Revenue.
• The Workplace Relations Commission (WRC) is responsible for ensuring compliance with the Act. Employers must be prepared to demonstrate adherence to the law during inspections.
• Employers should ensure that tips are not used to make up basic wages and are distributed according to the established policy.
• Employees who are dissatisfied with the distribution of tips or feel that the employer has breached the legislation can file a complaint with the Workplace Relations Commission (WRC). 
• The WRC has the authority to award compensation to the employee. The compensation amount may be up to four weeks’ remuneration.

There are a few ways to be compliant with The Act. Each will incur different taxes and/or fees for salon owners and employees. Use our handy tipping tax calculator to compare at a glance, or keep reading for an example.

Let’s say one of your employees is making €1,000 in tips in a month, and these tips are collected via card payments and allocated by you.

Payroll

• If you pay out those tips via Payroll, your employee will pay 4% PRSI (€40) and 20% PAYE (€200), meaning they keep €760
• Meanwhile, your business needs to pay an additional 11.05% PRSI on the tips, costing you €110.50 per employee per month.

Dedicated tipping app

• If you use a dedicated tipping app, your employees will be required to pay a monthly fee for use of the app.

PhorestTips

With PhorestTips, tips paid by card do not enter the employer’s account at any stage, tips are paid directly into the employee’s account. This means:

• The entire €1,000 is retained by the employee (though, just as with cash tips, they are required to declare this on their year-end tax declaration to Revenue and pay any outstanding income tax and PRSI)
• There are no fees or taxes incurred by your business.

The tax process for PhorestTips for your employees is very similar to how cash tips are handled. The full tip amount will be sent directly to employees’ accounts, bypassing payroll, meaning no PAYE tax will be deducted before it reaches their account. Revenue does require PAYE is paid on all income, including tips, so just like with cash tips, your employees are expected to declare their untaxed tipping income to Revenue at year-end, and pay any outstanding tax.

Pros

• Staff can accept both cash and card tips
• Easier for staff to remain tax compliant as tax on tips is taken via PAYE.

Cons

• An additional cost for your business – you need to pay 11.05% PRSI on tips that are collected and distributed through the business, and this cannot be covered by your staff
• Additional admin required for tipping via payroll
• Staff may be waiting up to 2 months for tips to be paid into their accounts.

Pros

• You are outside the scope of the legislation as tips go directly from the customer’s card to the employee account
• No employer PRSI contributions need to be paid as tips don’t go through payroll
• No additional tipping admin in payroll

Cons

• Staff miss out on up to 25% of tips (according to Phorest statistics, salons taking tips in the same transaction as payments take in 25% more tips)
• A poor customer experience for your clients, asking them to make two separate transactions on their way out the door
• Staff need to pay a monthly fee for use of the app
• QR code chaos cluttering your front desk.

Pros

• You are outside the scope of The Act as it only applies to ‘employer-received’ tips – cash tips are collected directly by staff
• No employer PRSI contributions need to be paid on cash tips as they don’t go through payroll
• Immediate payment of tips to staff.

Cons

• Staff miss out on 25% of tips (according to Phorest statistics, salons taking tips via a card terminal take in 25% more tips)
• Difficult for staff to remain tax compliant – staff must maintain their own records on tips so they can report tip earnings pay income tax at the end of the year
• If cash tips are collected in a tip jar, they will fall under the remit of the legislation (as the employer has a hand in collecting and distributing them) and so will require PRSI contributions from both the employer and employees if they are distributed via payroll.

Yes, you will need to have a PhorestPay account and use a PhorestPay Card Terminal to avail of the PhorestTips feature. Reach out to a PhorestPay Advisor if you need to get set up with PhorestPay.

According to Phorest data, the average salon sees a 25% increase in tips when using a PhorestPay card terminal with tipping prompts, as clients can leave a tip without needing to bring cash to their appointment, or without having to scan a QR code. Accepting tips using the PhorestPay card terminal is better for your team, too, as it allows them to accept more tips and make more money.

Yes. Each of your staff and the self-employed professionals at your salon will have their own PhorestPay account. The tip will be sent directly to the account(s) of the professional(s) who carried out the service(s), while the payment for the service(s) and product(s) will go to your account.

The tipping experience will be seamless for salon customers – 

• They won’t need to make a separate transaction to pay a tip or use any QR codes, they are prompted to leave a tip while paying for their service
• They can skip the tipping step entirely if they wish
• You can customise how you prompt them (e.g. allowing a custom amount or suggesting percentage options)
• They can opt to incur the transaction charge themselves or take it from the tip amount (i.e. passing the tip transaction charge to the employee, not to your business).

Yes. Each of your staff (and any self-employed professionals at your salon) will have their own PhorestPay account. The tip will be sent directly to the account(s) of the professional(s) who carried out the service(s) on the client, while the payment for the service(s) and product(s) will go to your account.

In order for an employee to get a share of the tip, they will need to be recorded on your Phorest system as having provided some part of the service that day. While it’s not common in the salon industry to share tips among staff who are not directly involved in providing a service, we will be adding this capability to PhorestTips in the near future.

The tips will be paid instantly to their PhorestPay account and they will be notified immediately. These tips will be paid out to your employees bank account the next working day. We will offer instant payouts to bank accounts in the next few months – keep an eye out for this feature!

No, there is no cap on the amount of tips that can be processed through PhorestPay or PhorestTips.

No, PhorestTips will be completely free to business owners as a feature within the PhorestPay system. There will be a small transaction fee for your clients on payment of the tip. This will default to the client incurring this fee, but they can opt to take it from the tip amount (i.e. passing the tip transaction charge to the employee, but not to your business).

The tax process for PhorestTips for your employees is very similar to how they handle cash tips. The full tip amount will be sent directly to employees’ accounts, bypassing payroll, meaning no PAYE tax will be deducted before it reaches their account. Revenue does require that income tax is paid on all income, including tips, so just like with cash tips, your employees are expected to declare their untaxed tipping income to Revenue at year-end, and pay any outstanding tax.

You’ll be automatically opted into PhorestTips when it launches, but you’ll need to get your team set up with their own PhorestPay accounts to receive their tips. We will send you instructions on how to do this closer to the launch of the feature.

Nothing – we will automatically enable this feature on your device in the coming weeks. We’ll be in touch beforehand with more information to make sure you and your staff are fully prepared.

You will need to have a PhorestPay account and use a PhorestPay Card Terminal to avail of the PhorestTips feature. Reach out to a PhorestPay Advisor to get your business and your team set up with PhorestPay.