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Hospitality and tipping – what you need to know

The UK Government introduced at the end of last year new legislation on tipping, which will significantly impact hospitality businesses. The Act means hospitality workers can now keep 100% of their tips. Caterer.com takes a look at the changes and how businesses can ensure they are complying with the new laws.

Hard-working hospitality employees keep more cash

October 2024 marked a seismic shift in how tips are managed. The Department for Business and Trade estimated that around £200 million will now go directly into workers’ pockets, rather than being retained by employers.
The new law, the Employment (Allocation of Tips) Act, along with the statutory Code of Practice on the fair and transparent distribution of tips, mandated that hospitality employers must pass all tips, gratuities, and service charges on to workers without any deductions.

Fines and Tribunals for Non-Compliant Employers

If an employer fails to comply with this law and retains tips, workers can bring a claim to an employment tribunal. Employers who retain tips could face fines or be required to compensate staff, holding employers fully accountable. While most employers already pass on tips to their employees, these laws will target the minority who engage in unacceptable tipping practices.

One employer’s experience

Paul Gibbons is General Manager at Boath House, a Georgian mansion hotel in the Scottish Highlands. We asked him to share his experience of the new tipping laws.
“At Boath House we have always operated a system where we share all our service charge with all our staff every month.
Hospitality businesses are under huge pressure with the general rise in operating costs, and more so with the introduction of the higher national minimum wage and increases in NI contributions.  However, it is totally wrong for tips and service charge to be used to address these operational issues.
We believe that a fair and total distribution of service charges, collected on behalf of staff working in hospitality, should be enforced by law. It will help to improve transparency and trust between employers and their teams of hard-working staff.  The other plus is that customers know exactly how their generous recognition of good service is reaching the right people.”

Understanding the Specifics: What Tips are Included?

The law distinguishes between two types of tips:
  • Employer-Received Tips: These are tips paid to the employer, typically via credit/debit card, including ‘Tronc’ systems where tips are collected from customers and distributed according to the employer’s instructions.
  • Worker-Received Tips: These are tips given directly to the employee by the customer, usually in cash, which do not have to be distributed unless they are subject to the employer’s control or connected with other worker-received tips under the employer’s control.
The Act covers every tip, unless it is handed directly to the staff member by a customer, and their employer allows them to keep it in full.

Changes to Tronc

Employers cannot retain any portion for expenses using Tronc schemes. These are often used for pooling and distributing tips but must now comply with stricter rules under the act.
All tips collected in this way must be given to workers, within the new timeframe, and employers must keep distribution records that employees have access to.

Summary of the new UK Tipping Laws law and their impact on employers

What you need to know:

  • 100% distribution – All tips must be fully distributed to staff, with proof provided that this has occurred.
  • No deductions – no deductions are allowed under any circumstances.
  • Timely distribution – Employers must distribute all tips to workers by the end of the month following the month in which the tips were paid by the customer.
  • Agency Workers – Agency workers are also entitled to tips, which must be paid by the agency employing them.
  • Record keeping – Employers must maintain detailed records of tip distribution.
  • Employee Rights: Workers can bring claims to an Employment Tribunal if their employer fails to provide the required records.

Since October 2024

  • 100% of tips must go to workers.
  • Employers must be transparent, with set rules for distribution
  • Tips must be distributed within a reasonable timeframe
  • Employers must maintain detailed records of tip allocations

What the changes mean for employers

  • Implementing a written policy: For businesses like hotels, bars, and restaurants where tips are regularly paid to employees, it’s crucial to have a written policy explaining the allocation and distribution of tips. This policy should be clear and accessible to all staff to ensure compliance with the new laws and help avoid potential complaints and claims.
  • Keeping detailed records: Employers must keep a record of how tips are allocated and distributed among employees. Under the new law, employees have the right to request information about an employer’s tipping record every three months. If requested, employers must comply within four weeks. Any inconsistencies or unfair distributions can be used as evidence in tribunal claims.
  • Tip Payments: Tips must be given to employees by the end of the month following the month in which the tips were paid. Failure to do so could result in employees claiming up to £5,000 in compensation.
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