In the eyes of the law, what exactly is a tip?  

Not long ago, tipping was considered an American custom, but it is now common practice here. It's on the rise in synch with the explosion of Australia's dining culture in general. It seems pretty straightforward: happy customers might leave a little extra payment at the end of the night as a thank you for excellent service.   

Patrons do this with the expectation that the person they leave the tip for receives it, but this is not always the case.  

Tips are classed as earnings and should be listed as additional benefits on one's income tax return. Now, I'm not naming any names, but I worked as a waitress whilst putting myself through university and I would be very surprised if the ATO had any statistics showing that this practice is dutifully followed by the majority of hospitality workers.  

People aren't declaring their tips, so that money then exists outside the grid.  

Probably because it doesn't show up in the paperwork, this section of the economy has been left completely unregulated. There is no national legislation, and no state or territory laws I know of (although I'd be happy to be corrected) that addresses the issue of who tips belong to.  

Whether or not an employer passes the tips on to their staff is completely at their own discretion. Most employers respect the spirit of tipping and distribute them, but if they choose not to, the employee doesn't have a legal leg to stand on. The Hospitality Workers Union says that this is a matter that should have been covered by individual workplace agreements - hah!   

There is nasty trend where more and more establishments are not allocating the tips. Either at all, or they are taking a percentage, or they are managing how they are spent (known in the trade as the old, "Oh, we're putting them towards the Christmas party" scam). If you add your tip to a credit card payment, then the chances of your charity actually finding its way to your intended recipient are even further diminished.  

Even in the majority of businesses where the owner/managers are honest and fair-minded, tips are still tricky business. Floor staff receive the tips, but there's an unwritten rule that the decent thing to do is to share them with the kitchen staff.  

After all, apprentice chefs, kitchen hands and dish-washers are even more poorly paid than their front of house counterparts. Plus, no matter how great the service was, people are unlikely to tip well if they didn't enjoy their meal.   

In the gaping hole created by a complete absence of regulation many workplace disputes emerge over who is entitled to what share of the tips.  I once saw a co-worker sacked for keeping a $10 tip that was given to them directly; not left with the bill, or in a jar, but placed in their hand with an expression of personal thanks.  

According to the Australian Bureau of Statistics, at the end of June 2007 there were 13,987 cafe and restaurant businesses operating in Australia. Add to that all the pubs, clubs, and caterers and you get a lot of businesses who must be finding their own ways to deal with the issue of tips.

The Department of Industrial Relations could surely have a chat to some of them and draft some guidelines?

There will always be a minority of people who are dishonest, but why persist with a system that we know full well blatantly ignores reality?  Tipping is an emerging social trend so we have to deal with it. To protect workers rights, but also because regulating tipping would only add to the pool of taxable income declared.  

That said, I'd argue that tips should be considered a gift and exempt from tax. 

However, tips are just the tip of the ice-berg. Successfully regulating tipping would need to be part of a bigger project to re-regulate the entire hospitality industry. I remember hearing all about how the introduction of the GST was going to eliminate it, but the fact is that the "cash" economy is still rife in this sector. A combination of low-skilled workers and lots cash payments has created a culture where most small operators run two "sets-of-books".  

Of course there are minimum wage, and condition guidelines, in each state and federally.  But in many of the restaurants, cafes and bars all over Australia they are not worth the paper they're written on. In my observations, and conversations with hospitality workers it is commonplace that they are being paid $12-$18 an hour when they should be entitled to $24-$32 an hour dependent on their age, duties and shifts worked.  

Why would anybody let themselves be so exploited?  

With the unconventional hours, many of the people working in hospitality are students and low-income parents. So they take on "cash-in-hand" work. It's easy to characterise them as welfare cheats, but in my experience most of them would rather not break the law but have no practical alternative.   

This means that some of our most poorly paid workers are extremely vulnerable. In exchange for not paying all their tax, they're not getting paid the award, they're not getting after hours rates, they're not getting paid overtime, they're not getting paid superannuation, they're not entitled to sick-pay or holiday-pay, they have nowhere to turn when they experience discrimination and they're not covered by workers compensation. Nor are they having their rights to basic things like a meal break respected.  

Tips have traditionally offered an unofficial form of compensation for this, to which the government has turned a blind eye. When even this small consolation is threatened the time has come for greater involvement.  

And next time you leave a tip, remember it's your money and you should feel entitled to politely enquire what the in-house policy is. That way you can help ensure that it will find its way to the people you meant it for.