By Matthew Hutton, accounting senior manager, Armstrong Watson
Hospitality businesses need to prepare for new rules that are due to come into force to ensure all qualifying tips are fairly and wholly distributed to qualifying employees and agency workers.
The Employment (Allocation of Tips) Act 2023, referred to as the Tipping Act, received royal assent in 2023 and will make it unlawful for employers to retain or withhold any qualifying tips (tips, gratuities and voluntary service charges).
Hospitality businesses must ensure they are ready for the Act coming into force on 1 July 2024 in England, Scotland and Wales.
How to prepare for the Tipping Act
Every business with employees or agency workers who receive tips will be affected.
To help you prepare
- Ensure 100% of tips are passed on to staff. This includes a ban on withholding any element of the tips designed to cover a proportion of charges on card takings.
- Ensure a fair distribution of tips and have a written policy which is available to all qualifying staff, making them aware of the Act and any changes you are implementing as a result.
- Distribute all tips in line with the policy by the end of the month following the date of receipt. Normal payroll processes should be followed for tips paid by the employer, and it must be ensured that the correct tax and National Insurance deductions are made from the tips at source and passed on to HMRC.
- Keep an ongoing record of the allocation and distribution of tips and keep this record for a rolling period of three years from the date of receipt.
- Be prepared to provide a copy of the record upon request to any qualifying employee or agency worker.
Businesses already operating an official tronc scheme, where a separate organised arrangement exists to distribute tips, gratuities and service charges, can continue to operate this way but will need to ensure:
- The operator of the scheme (the ‘troncmaster’) meets the definition of being independent in the act.
- The scheme itself qualifies and follows all of the new requirements in the act as listed above.
Importance of compliance
While the timing of the change may be unpopular with businesses – adding another administrative and potential cost burden at a time when the industry faces many other challenges – compliance is obligatory and employers need to prepare.
In the event of non-compliance, qualifying staff can bring a claim against the business in an employment tribunal, which could result in compensation payments of up to £5,000.
Businesses should also consider the potential reputational damage if they are not following the new laws and this is reported publicly.
It is also important to remember that tips do not count towards pay for National Minimum Wage (NMW) purposes.
Normal rules still apply, and all working time must be paid at the required rates excluding tips.
For advice on any of the above, or to find out more about how your business might be affected, please contact Armstrong Watson on 0808 1445575 or email help@armstrongwatson.co.uk
