Employment Minister Pat McFadden MP announced on Wednesday 6 May that as of 1 October, all tips, service charges, gratuities and cover charges will be excluded from counting towards the National Minimum Wage.

This announcement on timing means that Ministers have ignored calls for a delay to this legislation due to the current economic woes despite their earlier response to consultation acknowledging that the number of affected hospitality employees and the annual cost to affected hospitality employers were well above their original estimates.

The number of hospitality employees affected by the change is estimated at 48,500 compared to the original Government figure of 34,700 employees. The cost to business is calculated as £66.8m way above the initial Government estimate of £47m.

The BHA estimates these figures could be higher still and yet BERR has ignored the evidence regarding administrative costs to implement the changes and still describe them as 'negligible'.

The change to legislation will be affected through an amendment of the National Minimum Wage (NMW) regulations. Further to the changes to service charges, the Government announced on Tuesday 12 May that it has accepted the Low Pay Commission recommendations that minimum wage rates should rise on 1 October.

This is despite the Low Pay Commission having been told very clearly by the BHA and other business organisations, including the CBI, that an October rise would almost certainly cost jobs.

The adult rate (now to start at age 21 instead of 22) rises by 7 pence an hour to £5.80; the rate for 18-20 year olds will rise by 6 pence to £4.83 and the 16 and 17 year old rates rises by 4 pence to £3.57. The daily accommodation offset will also rise by 5 pence to £4.51.

One consequence of the change is that, because discretionary service charges will no longer count towards the NMW, the exemption from National Insurance contributions for such payments will only apply above the NMW. The government will gain £7.5m a year in employer and £6.5m in employee contributions, based on BERR's cost estimates which will rise when both types of NIC go up by 0.5 per cent in April 2011.

The BERR response confirmed that Ministers also want to proceed with a voluntary code of practice "to achieve greater levels of consumer awareness in relation to the use and distribution of service charges, cover charges, tips and gratuities."

The BHA has had a number of meetings with BERR officials, which are continuing, on a draft code and members will be updated in future editions of the e-zine and via the Business Update.