New legislation on tipping protocols

Hospitality workers must receive all gratuities and service charges without deductions in future.

Hospitality and other service sector businesses need to gear up for gratuity changes, with new legislation designed to tie up loose strings over tipping protocols, to ensure all tips and service charges are handed over to staff.

The long-awaited legislation, drawing on recommendations from the Government’s Good Work Plan proposals, will make it unlawful for employers to withhold tips and service charges from staff, and give workers new rights to see an employer’s tipping record.  The new rules will come into force after winning backing from MPs and a new statutory code of practice is set to be developed, to provide businesses and staff with advice on how tips should be distributed.

A wider employment bill was intended to incorporate these changes, but when the bill was subject to ongoing delays, MP Dean Russell put forward a private members’ bill to tackle the issue. The government, which formally backed the Employment (Allocation of Tips) Bill at its second reading in parliament, said it should benefit more than 2 million workers.

The new rules are designed to overcome situations where employers make deductions from tips or withhold service charges, with many so-called ‘administration’ charges levied where tips are given through card payments. 

“This change is finally in sight and employers operating a business with gratuities and tipping involved should get on board with matching up to the new rules,” said employment law expert Katie Ash, Head of Banner Jones’ Employment Law Team which has offices in Sheffield, Chesterfield and Mansfield.  

Whether tips are paid through a set percentage service charge or added at the discretion of the customer in cash or card payments, historically there has been no control over how tipping in the workplace is managed, just a voluntary code of practice which encourages employers to be transparent. 

The only restriction there has been on employers is that tips cannot count towards the national minimum wage (NMW).  The NMW Regulations apply to any eligible worker, whether they are paid by the hour or on some other basis, and calculations must be made to check if the equivalent hourly rate is at the right amount and any gratuities paid at work must be on top of the NMW.

Also, some restaurants may have what is known as a tronc scheme.  This is effectively a self-administered scheme for staff, with a troncmaster appointed to distribute tips between staff.  The employer is not able to influence the operation of the scheme or how tips are shared.  

Katie added:  “While this legislation may be controversial to some employers, this is now the final call for ensuring staff are receiving their full fair share of tips received.  The move towards cashless transactions has been a further barrier to workers who want to see how much has been given in tips and this will help tackle that issue with greater transparency in future.

“One aspect that employers need to face up to is the handling of tips when customers add it on to their card payment.  In the past, many businesses have made a deduction for the related transaction fees applied on card payments, before passing the cash on to workers, but this will no longer be permitted.  In future, the whole sum must be passed on.”