The new laws on tips – a warning to the hospitality sector

Those in the hospitality industry will have heard about new legislation coming into force which seeks to prevent employers withholding tips from workers. Back in February we reported on the proposals to introduce legislation giving employees the right to receive 100% of their tips. The Employment (Allocation of Tips) Bill passed its second reading on 15 July 2022 and it is expected that it will become law.

It is estimated that the new legislation will benefit more than 2 million workers working in the hospitality sector. For many individuals’ tips and service charge form a big chunk of their income and so the new legislation is widely welcomed by many.

Cash tips paid directly to a worker are protected by law. However, currently, tips paid by card are directly paid to the employer making it easy for businesses to hold onto tips paid by card. The move to a cashless society has called for a reform into tipping. With the pandemic and increase in use of applications like Apple Pay, it is said that card methods now account for 80% of tipping methods. When the legislation is enacted, employers will no longer be able to deduct money under the guise of processing fees for tips left by customers using credit or debit cards. 

 

What will the new legislation look like?

• Employers will be required to pass on tips to workers without any deductions, save for deductions required by law (tax or NI deductions). A tip must be paid to a worker no later than the end of the month following the month in which the tip was paid.
• Employers will need to have a written policy on tips and record how they manage and deal with tips – this must be made readily available to workers.
• Rights for workers to request information about an employer’s tipping record – this will enable employees to bring credible claims to an Employment Tribunal. A record must be kept for three years from the date the tip was received.
• A statutory code of practice will set out how tips should be distributed to demonstrate fairness and transparency. Currently there is a voluntary code of practice, however it is said that that it does not afford adequate protection as it is for guidance purposes rather than law.
• A right for agency workers to benefit from the Bill and receive a fair share of the tips.

Employers in breach of the rules will potentially face Employment Tribunal claims which could result in compensation and/or fines. The bill is still going through parliament and is at the committee stage which means it is still open to change following a more detailed review. It is important that businesses start to review their business models and ensure their policies on tipping and service charge clearly set out how tips are managed.

If you require a review of your current policies on tipping and service charge or require any further advice in respect of the proposed changes, please contact the Employment Team at Boyes Turner ([email protected]).