Government unveils plan to overhaul tipping practices

Posted: 29/09/2021

Many hospitality workers earn the national minimum wage or national living wage and rely on tipping to top up their income. However, businesses can add a discretionary service charge onto customers’ bills and research has shown that many businesses keep part or all of these charges instead of passing them onto staff. 

As we have moved towards a cashless society and there has been an increase in card payments, it has become easier for businesses to keep such funds. According to the Government, 80% of all UK tipping happens by card and businesses have the choice of whether to keep it or pass it onto workers.

This could soon change. In 2016, the Government launched a Consultation on Tipping, Gratuities, Cover and Service Charges. On 24 September 2021, the Government unveiled its plans to make it illegal for employers to withhold tips from workers and confirmed it will legislate to prevent employers making any deductions from tips received by their staff, other than those required by tax law.

This move is estimated to help around 2 million people working across the hospitality, leisure and services sectors where tipping is common practice and can form a large part of their income. Customers will also know that tips are going in full to workers and not businesses.

The legislation will include the following:

1. a requirement for all employers to pass tips onto workers without any deductions, including administrative charges, other than those required by tax law;
   
   
2. 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;
   
   
3. 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;
   
   
4. 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;
   
   
5. 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
   
   
6. 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.

The legislation will be included in the forthcoming Employment Bill and the Government expects the rules to commence no earlier than one year after the Bill has passed.

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