Are You Following The Law With Regards To Employees' Tips? 

Millions of low-paid workers in tips based roles rely on tips to boost their income.

When unfair tipping practices amongst some chains in the hospitality industry made the headlines, it prompted a major consultation and reform that would require employers to pass on all service charges and tips in full to their employees and workers, including those left via card payments.

If you’re a business owner in an industry that regularly receives tips, then read on to understand the current law, the changes that are coming and how the employment bill 2022 affects what you need to know as an employer when it comes to tipping and tip distribution.

The Background 

Though it is not required by law, tipping is a common practice in the United Kingdom, with many customers choosing to leave a discretionary 10-20% tip for service received and sometimes service charges are added to customer's bills.

This can be an excellent way for over 2 million hospitality workers like bartenders, waiting staff and porter staff that tend to earn the minimum wage to top up their income.

Whilst the cash tips, a discretionary service charge, and card tips given by individuals are often intended for the person serving them, some businesses in the service industry were found to be keeping part, or all of their worker's hard-earned tips.

This practice was made even easier for them to do when the pandemic sped up a move to cashless tipping, with over 80% of tips paid now being given by card payment.

As a result of this long-standing issue, consultations took place in 2015 and 2016, the government released plans to legislate how tips should be distributed as part of a package of new measures to support workers, businesses and entrepreneurs.

In July 2022, the government announced the long-awaited Employment Bill that features proposed changes has now passed the second reading in parliament and is now likely to become law, but the earliest it could come into effect is Autumn 2023.

The Bill would create new legal obligations on employers to ensure all tips, gratuities and service charges they receive or exercise control over must be paid to workers without any deductions, and that the distribution of tips is fair.

Current Law On Tipping 

Whilst the government has an existing voluntary code, the code of best practice on service charges, tips, gratuities and cover charges, it is merely a best practice to be followed.

In contrast, the new bill will overhaul tipping practices by bringing in new legislation that makes the expanded actions listed within it a legal requirement for employers to follow.

Currently, employers should be clear (and communicate with their staff) about how tips and service charges are collected and distributed amongst staff, no deductions from wages should be made without a worker's written consent, and tips do not make up the national minimum wage and should be paid on top of their wages.

The current legislation prohibits restaurants from holding onto cash tips, but when card payments include a tip, it's down to the restaurant to decide how and where that money is spent.

What Will Change With The New Laws? 

The Bill would amend the Employment Rights Act 1996 to insert new legal obligations on employers in a Part 2B on tips, gratuities and service charges.

The update will apply to direct employees in the hospitality business and to agency workers supplied to work in the sector and extends to England, Wales and Scotland, but not Northern Ireland.

When the Government passes The Employment Bill as law, it will be illegal for employers to withhold tips from workers, including those received via card payments, and for employers to make any deductions from tips received by their staff, other than any required by UK tax law.

In short, the law requires all employers to ensure that they compensate workers fairly on top of their wages with all tips, gratuities and service charges that they receive or have control over.

These new tipping laws will ensure that the tips due are paid to workers, in full, by the end of the following month, without deductions.

• Employers will have to pass on all tips to workers without deductions (including administration charges), except for tax directions required by law
• Employers will have to distribute tips fairly and transparently and will need a written policy that shows how tips are dealt with
• The employer can independently distribute tips or use a tronc system to fairly distribute staff tips, gratuities and service charges. All tips must be passed on no later than a month following the month it was given by the customer
• Workers will have new rights to request information relating to their employer's tipping record
• A statutory code of practice will set out how tips should be distributed for optimum fairness and transparency.
  
  

What Are Troncs? 

The word "tronc" comes from the French word for trunk or chest, and it refers to the physical box or container in which tips are collected. In the context of the Employment Bill, a tronc is a digital system used to gather tips and service charges and then share them amongst employees in the service and hospitality industry and is useful in promoting a fair and transparent way of distributing tips.

The tips are often distributed based on a percentage of sales, or hours worked and can be given through either cash or electronic means.

When an employee chooses to receive their tips through electronic means, they will need to provide their bank details so that the funds can be transferred directly into their account.

What Does This Mean For Businesses?

If any of the new rules are broken by an employer, they can be taken to an employment tribunal by affected workers with credible claims. This could result in businesses having to pay compensation and fines if found guilty.

As a result, employers in tipping industries must stay up-to-date with the changes that are coming and when they are due to be effective.

Complying with the current law surrounding tips, and taking steps to prepare early to fully adhere to the new laws when they come into force will help to prevent them from being taken to an employment tribunal by employees who are not getting the tips that they are owed.

If you would like support with managing and understanding your employer's responsibilities relating to tipping, gratuity practices, taxable income, national insurance payments, and how tips are shared amongst employees, please contact us.

We can also assist you with putting together a tipping policy and preparing for the changes ahead.