On 24 September 2021 the Government announced that there would be changes to the current laws on staff tips based on its findings from the Consultation on Tipping, Gratuities, Cover and Service Charges in 2016 (All tips to go to staff under government plans to enhance rights of 2 million workers - GOV.UK (www.gov.uk). When the legislation comes into force businesses will no longer be able to take any part of the tips (or service charges) given to staff. A change in the rules has become more urgent after the pandemic spurred a switch to cashless payment with 80% of all UK tipping now happening by card, making it easier for businesses to keep funds.
Current law on tipping
At present, legislation prohibits restaurants from holding onto cash tips, but when a tip is given over card, it is at the restaurant's discretion as to how and where that money is spent. The government has a Code of Best Practice (A Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges (publishing.service.gov.uk)) on tips that indicate how employers should handle them, however it is voluntary and employers do not have to follow it.
New laws to come in to force
The new legislation will be included in the forthcoming Employment Bill and the Government expects the rules to commence one year after the Bill has passed. It will be illegal for employers to withhold tips from workers and the Government will legislate to prevent employers making any deductions from tips received by their staff, other than those required by tax law.
The legislation is expected to include the following:-
- a requirement for all employers to pass tips onto workers without any deductions, including administrative charges, other than those required by tax law;
- requirements for employers to distribute tips in a fair and transparent way, with a written policy on tips and a record of how tips have been dealt with;
- employers will be able to distribute tips via a tronc i.e. a special pay arrangement that lets businesses in the hospitality and leisure sector fairly distribute staff tips, gratuities and service charges. A tip must be dealt with no later than the end of the month following the month in which it was paid by the customer;
- a requirement to have regard to the Statutory Code of Practice setting out how tips should be distributed to ensure fairness and transparency. This Code will be developed in partnership with workers and employers;
- new rights for workers to make a request for information relating to an employer’s tipping record. This will enable workers to bring a credible claim to an employment tribunal. Employers will have flexibility in designing and communicating a tipping record but should respond within four weeks; and
- if an employer breaks the rules, they can be taken to an employment tribunal and be required to compensate workers, often in addition to fines.
It has been confirmed that breach of these new obligations will be enforced in employment tribunals (ET). It is therefore vital that employers keep abreast of the changes in the law to prevent any ET claims arising from employees not getting tips. If you would like any advice on this please contact our Employment Team.