When is the new tipping law coming in?
The Employment (Allocation of Tips) Act 2023 received Royal Assent in 2023, with the government’s consultation concluding in February 2024. It will now come fully into force on 1 July 2024.
It applies for all businesses in England, Scotland and Wales collecting, allocating and paying tips, gratuities and service charges (referred to collectively as ‘tips’).
Why is the new tipping law being brought in?
The main aim of the new legislation is to ensure that all tips reach service staff, and that they are allocated in a fair way.
It covers tips and service charges which are “employer-received” (i.e. paid by card or otherwise to the employer and then paid to the staff member), as well as cash tips which are under the control of the employer to be allocated.
What is changing?
Deductions
- Currently: Employers can deduct any amount from the tip’s pot to cover admin fees, card transaction fees or other costs.
- New rules: 100% of tips and service charge must be allocated to staff members.
Timing of tip payments
- Currently: Some employers use the tips received in busy periods to supplement tips in quieter periods.
- New rules: Tips must be paid in full to employees no later than the end of the next calendar month after they are received.
Fair allocation
- Currently: There is a lack of guidance for operators on how to allocate tips.
- New rules: Tips must be proven to be allocated amongst staff “fairly”, and a new Code of Practice will be written by Government and will be launched to provide practical guidance on how this can be managed. Guidance is likely to include things like having all staff in the same job role on the same weighting for tips.
Regular wages
- New rules: It will no longer be legal to alter an employee’s regular wage (hourly rate or salary) in return for a share of tips. It will also be illegal for any guaranteed tips’ value to contribute to the National Minimum Wage laws.
Agency workers
- New rules: Agency workers will be eligible for the same proportion of tips as directly employed staff and are subject to the same rules on fair allocation and timely payments. Employers will have to pass on the agency worker’s share of tips to the recruitment agency who supplied them, who are then required to pay those amounts to their workers within a month of receipt.
Multi-Venue operations and head offices
- Currently: Some operators use the tips received in one venue to pay employees working in another.
- New rules: Tips that are received at a specific venue must be allocated to the staff in that venue, not across multiple locations. However, head office staff may receive tips from certain venues if their job role can be linked to that specific venue, e.g. Area Managers or Sales Executives for a particular venue.
Documentation and records
- New rules: Employers and independent Troncmasters will be obliged to publish a clear policy relating to tips and how they are allocated. The policy must explain how the employer complies with the need for “fair” allocation. Records of tips’ allocations must be retained for 3 years, and employees may request their personal tips statement as well as the tips statement for a venue, as long as there is no other personal data of other employees included.
Tronc schemes
- New rules: Tronc arrangements and their tax implications need not change, as long as the arrangement of allocations and payments is compliant with the new rules (ie. paid in full, on time and allocated fairly).
How can you prepare?
- Understand the new law and how it affects you: You can read the legislation in full here – Employment (Allocation of Tips) Act 2023 (external link to GOV.UK).
- Review and update your policies and procedures if necessary: Make it clear and transparent how your tips are collected, shared and reported.
- Communicate with your team: Also provide training where necessary.
- Check your tronc: If you use a tronc system make sure this meets the new rules and will be fit for purpose.
- Decide how you will keep records: Ensure you have a tips record keeping system in place, so that staff can request access to this information, as set out in the new law.
- Speak to your accountant or business advisor: If you are a Rouse client, contact our team about how we can assist you. If you are thinking about becoming a client, you can contact us to discuss how we can provide a full service of support for your business.
What will happen for those who break the new rules?
Those who don’t play by the rules may well find themselves in front of employment tribunals and facing prosecution, so it is important to ensure that you are ready.
Under the new rules, tribunals will be able to award workers up to £5,000 to compensate them for any financial losses suffered because of their employers’ failure to pay them correctly (or at all).
Hospitality accountants
We specialise in supporting hospitality and restaurant clients with a full range of accounting, tax, payroll and advisory services. We can also provide specialist advice for setting up and running Tronc schemes.
Find out more about our services here or contact us if you would like to discuss how we can assist your business.
Award-winning chartered accountants offering tax, audit and advisory services.