Forthcoming changes to Tips and Gratuities: What you need to know
The UK hospitality and arts sectors are bracing for significant legislative changes regarding tips and gratuities, set to take effect from 1 October 2024.
Understanding the upcoming changes and preparing your organisation accordingly is paramount. This article outlines the key aspects of the new legislation, its impact on your workforce, and the steps you need to take now to ensure compliance.
Overview of the new law
The Employment (Allocation of Tips) Act 2023 requires employers to distribute all ‘qualifying’ tips, gratuities and discretionary service charges to their employees without any deductions. Qualifying tips can include those paid via credit/debit card or other electronic means. The new Act will also apply to cash tips, where the tips are deemed to be under the employer’s control – for example, where there is a policy to pool or collect tips. The legislation will also potentially capture tipping ‘apps’, which are becoming more commonplace, typically embedded in systems when you order and pay via a phone or device at the table. Care must be taken if the app/platform automatically deducts a proportion of the sum, as the legislation requires all qualifying tips to be allocated.
The goal is to ensure that employees receive the full benefit of the tips intended for them by customers, promoting fairness and transparency.
Key Changes
- Full distribution of tips: Employers are required to pass on 100% of tips to employees. Previously, it was common for businesses to retain a portion to cover administrative costs or distribute tips through a discretionary service charge.
- Fair and transparent allocation: The Act demands a fair allocation method. Employers must develop a written policy on how tips are distributed and make it accessible to all employees.
- Record-keeping requirements: Detailed records of tips received and how they are distributed must be maintained for at least three years. Employees have the right to request these records to ensure transparency.
Who will be impacted?
This legislation impacts all employers and many employees within the hospitality and arts sectors, including:
- Restaurants and cafes: Front-of-house staff such as waiters, bartenders, and hosts.
- Hotels: Housekeeping, concierge, and other customer-facing roles.
- Arts venues: Employees in theatres, museums, galleries, and other cultural institutions where tipping is customary.
- Catering and events: Staff involved
Preparing for implementation
Organisations need to take proactive steps to ensure they are ready for these changes by the October 2024 deadline. Here’s what you need to do:
- Develop a ‘Tips Policy’: Create a clear and comprehensive policy outlining how tips will be distributed. This policy should detail the allocation method, timelines, and any points of contact for employees with questions or concerns. Consider whether ‘fair allocation’ in your organisation extends to managers, head office, kitchen staff or other back-of-house staff too. A prudent employer may opt to consult staff when developing the policy, as this is likely to reduce subsequent challenges as to the fairness of any allocations made.
- Educate and train staff: Inform all employees about the new legislation and how it affects them. Training sessions can help ensure everyone understands the policy and their rights under the new law.
- Update payroll systems: Work with your finance and payroll departments to update systems to handle the distribution of tips and service charges in compliance with the new requirements.
- Enhance record-keeping practices: Implement robust record-keeping practices to track the receipt and distribution of tips. Ensure these records are readily accessible for employees and comply with the three-year retention requirement.
- Communicate with customers: Consider informing your customers about how tips and service charges are distributed to ensure transparency and manage their expectations.
- Review contracts and agreements: Examine any existing employment contracts or agreements to ensure they align with the new requirements. Make necessary amendments to reflect the changes in tip distribution.
The forthcoming changes to tips and gratuities legislation in the UK represent a significant shift towards greater fairness and transparency for employees in the hospitality and arts sectors. By taking the necessary steps now, to prepare, HR professionals can ensure their organisations are compliant and continue to foster a positive and equitable working environment. This can also be an opportunity to reinforce trust and satisfaction among your staff, which can ultimately lead to improved service and customer experience.
