Unless prevented from doing so for tax purposes, businesses will soon have to pay workers 100% of tips under new legislation. Withholding tips from employees will now officially become unlawful following the provision of Royal Assent to the Employment (Allocation of Tips) Bill (the Act), which aims to protect more than 2 million workers and their tips across the UK. As employee’s tipping records are no longer concealed, it is estimated that around £200 million a year will go back into the pocket of hard-working staff by retaining tips that would have otherwise been deducted1.
But what are the new laws on tipping and service charges and what does this mean for employers and employees? Tom Moyes, a Partner in the Employment team at Blacks Solicitors who works with a number of hospitality businesses including a national restaurant chain and 5* star hotel, discusses what this new law means for hospitality workers and how this will affect the industry.
What is the Act?
The Employment (Allocation of Tips) Act 2023 gained Royal Assent in May, protecting hospitality workers by making it unlawful for employers to withhold tips. The entirety of the Act will come into force in 2024.
Workers within the hospitality sector are often paid minimum wage, relying upon tips or service charges to make up their income. Whilst cash tips are frequently paid directly to the worker, any tips paid by card are instead paid directly to the employer or business prior to distribution to workers, where certain deductions such as card processing fees can be deducted meaning that workers may often be left short changed.
Changes to the law:
The Act was introduced to overhaul the previous tipping practice in the UK and requires that:
- Allstaff tips must be passed on by employers without any deductions (unless the employer cannot do so for tax purposes);
- Employers must have a written Statutory Code of Practice (SCOP) which will set out how tips should be distributed in order to demonstrate fairness and transparency;
- Records detailing the distribution of tips must be kept by employers for three years from the date the tip was received;
- Workers have the right to request a record of their tips for any particular period and the employer must respond to this request within four weeks;
- If a tronc system is in place, any owed tips must be paid to workers no later than the end of the month the tip was received;
- This Act will apply to all agency workers in the same way; and
- The SCOP will need to be followed by all employers.
What does this mean for staff and hospitality businesses?
Following the Act being introduced, any breach of this will entitle a worker to make a claim at the Employment Tribunal for reallocation of the tip and/or compensation.
Ultimately, the Act requires that the total amount of tips received are fairly distributed to the workers, therefore, the employer will be responsible for the financial burden of paying card processing fees and administrative charges that are associated with non-cash tips.
With the introduction of the entire Act imminent, businesses and employers within the hospitality sector must start considering what they need to do to ensure that they are compliant with all aspects of the Act before it comes into force in 2024. Much emphasis will be placed on the SCOP, which will provide employers with valuable information.
For more information and advice on employment law, please visit www.lawblacks.com/business/employment-law/.