By Matthew Hutton, accounting senior manager, Armstrong Watson
Hospitality businesses have more time to prepare for new rules 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, will make it unlawful for employers to retain or withhold any qualifying tips (tips, gratuities and voluntary service charges).
It was due to be introduced in England, Scotland and Wales on 1 July 2024 but this date has now been pushed back to 1 October 2024. A new Code of Practice has been published and hospitality businesses must ensure they are compliant in advance of the act coming into force.
Every business with employees or agency workers who receive tips will be affected and the following steps should help in preparation for the implementation of the act:
- 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 that there is a fair distribution of tips. Each business is required to have a written policy governing the allocation of tips which is made available to all qualifying staff.
- Make staff aware of the act and your business’ policy. Inform them of 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 following:
- 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
In the event of non-compliance, qualifying staff are entitled to bring a claim against the business in an Employment Tribunal. If in breach of the compensation payments of up to £5,000 could be enforced.
As well as the potential legal and financial penalties, businesses should also consider the potential reputational damage that could be done if they do not follow the new laws, and this is reported in the media.
National Minimum Wage
It is 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.
Mandatory change
The new legislation will be a welcome change for hospitality employees and agency workers, as it will give them peace of mind that they are receiving a full and fair allocation of tips.
For affected businesses, while this may be seen as another administrative and potential cost burden, it is important that processes are in place that comply with the new regulations.
For advice on any of the above, or to find out more about how your business might be affected, please contact Armstrong Watson on 01768 222030 or email [email protected]
