A simple guide to the new laws on tipping

A new law on tipping has been making its way through Parliament over the last few months.

The "tips bill", as it’s colloquially known, will make it illegal to withhold any service charges from staff and will require businesses to put processes in place to record tips and systems to document that they're being distributed fairly.

The "Employment (Allocation of Tips) Act 2023" received Royal Assent in May, meaning that it's in its final stages and we can expect it to come into law.

The new measures are likely to come into effect in early 2024, so here are the key things you need to know, and what you need to do to prepare.

Withholding tips from staff will become illegal

Under the new legislation, it will become unlawful for a business to hold back any tip or service charge and not pass it along to their employees. One hundred percent of qualifying tips must be given to staff — this includes discretionary charges, whether card or cash, and you cannot make any deductions from the tip (such as card charges or admin costs), with the only exception being tax.

Tips must be distributed fairly to all workers, and importantly agency staff must be treated the same as employed staff.

What constitutes "fair" will also likely be regulated, and it’s expected that a new "code of practice" will accompany the bill to provide businesses with guidance on how tips should be shared.

Operators will need to have a written policy available to all staff that details how tips are distributed

Each business will need to have a written policy, available to all staff, that clearly states how tips are collected and distributed.

This could be included in your staff handbook, or it could be a standalone document. You could also require this new policy to be acknowledged so that you have evidence of all staff being aware. You can do this in your RotaCloud account using the Document Acknowledgement feature.

When writing a policy, make sure it's clear and easily understandable. It doesn’t have to be long or complicated; the most important thing is that it details exactly how you're planning to collect, manage and distribute tips at your business.

How to write a tips policy for hospitality businesses

If you don't already have a written policy for tips and their distribution to staff, here are some things that you may want to consider:

• How you’ll be collecting tips, using ‘X’ method (card, cash, both)
• The name of the person responsible for managing tips
• How tips will be divided
• How tips will be distributed
• When tips will be distributed (the new law states that tips must be paid no later than the end of the month following the month in which the tip, gratuity or service charge was paid by the customer)
• And what happens during leave, for example holidays, sick leave, parental leave

Business should also record all tips taken and how they are distributed.

You will need to keep a written (or electronic) record of all tips taken, and include things like the total amount, when they were taken, who they were given to, and how they were ultimately distributed.

Workers will have the right to request to see all of this information, so it must be accessible to staff. It also needs to be kept accurate and up to date as it can be used as evidence in an employment tribunal in the case of a dispute. Records will need to be kept for a period of three years, beginning with the date on which the qualifying tip, gratuity or service charge was paid.

There are dedicated services you could use to keep track like TipJar, or you could use a spreadsheet and keep it stored using your RotaCloud account's Document Storage feature.

Wrap-up

Be aware that there may be an extra financial cost associated with collecting and processing tips. From absorbing the added costs of things like card fees, to the increased admin time that you may need, you’ll have to have a plan in place for this ahead of the new laws coming into effect, (likely) next year.

The new legislation can be read in full here.