Businesses must pay workers 100% of tips under new law
2-minute read
In an overhaul of tips and gratuity practices, a new law will make it illegal for employers to withhold tips from workers.
The long-awaited Employment Bill has now been passed in parliament and will come into force in 2024, the government has announced.
Tips and service charges must go to employees
The law means all tips and service charges must go to hospitality staff.
This issue was first consulted on in 2016 after media highlighted malpractice and unfair distribution of tips.
While cash tips are already protected by law, this new legislation will go further to cover card payments in an increasingly cashless society.
Many hospitality workers earn the national minimum wage or living wage and rely on the additional boost from tips.
What will the legislation say?
The new law on tips says:
- employers will be required to pass on tips to workers without any deductions
- a statutory code of practice will set out how tips should be distributed in order to demonstrate fairness and transparency
- employers should have a written policy on tips and record how they manage tips
- rights for workers to request information about an employer’s tipping record – this will enable employees to bring credible claims to an Employment Tribunal
This applies to hospitality businesses, including restaurants, bars, and cafes. Tips must be allocated fairly between all workers, including those on zero-hour contracts.
When is the new tipping law coming in?
These changes will be included in the Employment (Allocation of Tips) Bill, which was part of a public consultation in 2016. The Bill received Royal Assent on 2 May 2023.
The rules are likely to come into effect sometime in 2024, following a consultation and secondary legislation.
What does this mean for businesses?
Under the new legislation, if an employer breaks the new rules they could be taken to an employment tribunal. This could mean compensation and fines, so it’s important that you’re on top of what you need to do to comply with the new laws.
This could impact cash flow for some hospitality businesses that have previously used tips to boost their revenue.
Businesses will also want to prepare for how they're going to display tipping practices and communicate changes to staff and customers.
UKHospitality Chief Executive, Kate Nicholls, said: “We're pleased to support this new piece of legislation as it comes into law and look forward to working with government and other stakeholders on a code of practice that ensures a fair distribution of gratuities amongst all who contribute to providing great hospitality."
What is a tronc – and how can it help your business?
A tronc is a system sometimes used to pay employees their share of tips and service charges in the hospitality sector. A ‘troncmaster’ will be in charge of deciding how the money is divided. They’ll need to run payroll and report to HMRC.
Using a tronc can help your business manage your tax implications when it comes to tips and gratuities. It’s helpful as a tronc on a payroll can mean the tips are excluded from National Insurance contributions, whereas if you manage the sharing out of tips yourself, you’ll be responsible for NICs as well as income tax.
Find out more about tips at work on the UK government website.
Guides for hospitality businesses
Have you got any questions about the new tipping legislation? Let us know in the comments.
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Written by
Catriona Smith
Catriona Smith is a content and marketing professional with 12 years’ experience across the financial services, higher education, and insurance sectors. She’s also a trained NCTJ Gold Standard journalist. As a Senior Copywriter at Simply Business, Catriona has in-depth knowledge of small business concerns and specialises in tax, marketing, and business operations. Catriona lives in the seaside city of Brighton where she’s also a freelance yoga teacher.
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