As a restaurant owner, dealing with the allocation of tips and service charges can be confusing. To this end, the Employment (Allocation of Tips) Act 2023 (the Tipping Act) and an accompanying code of practice will come into force on 1 October 2024. The government is aiming to make the situation more straightforward for everyone involved and to ensure workers know that tips are being shared fairly. We take a look at the details of the Act and the steps a restaurateur will need to take to comply with the new law.
What are service charges and tips?
If you own a restaurant, you may add a percentage to the bill for the service that you have provided. This is a service charge, and you can choose whether to make it mandatory or voluntary. You currently have some discretion over how you pass on service charges to workers. For example, you can include kitchen staff or alternatively pass on the service charge only to the employee who served the customers. If cash is left on the table, this is a tip. Again, as the restaurant owner, you are free to decide how these are dealt with. They might be pooled and divided among employees, known as a ‘tronc’ system, or you can allow the server to keep the tip themselves. You currently have the discretion to decide how credit card tips are dealt with, which might allow some employees to complain about distribution.
Why has the government introduced the Tipping Act?
Different restaurants have different policies. The government introduced the Tipping Act to clear up the confusion and make the treatment of service charges and tips more coherent. As a restaurant owner, you will need to distribute tips fairly and largely without deduction to workers in a range of sectors, including hospitality, retail and service industries. Agency workers are also now entitled to receive tips.
What are tips for the purpose of the new legislation?
Tips, gratuities and service charges paid on or after 1 October 2024 need to be dealt with in accordance with the Tipping Act. This includes:
- All tips received by employers and certain tips received by workers
- Tips received by workers if they are controlled by the employer or connected to other tips received by workers that are subject to employer control
- Service charges that are mandatory and those that are discretionary
Cash tips received by workers and that are not subject to any employer control or involvement are not included.
How will tips need to be paid to workers?
Looking at an imaginary scenario, if Mark is a restaurant owner, he will need to pay tips fairly to employees at the end of the month following the month in which they were received. It will be illegal for Mark not to pass on tips, and no deductions can be made except for usual tax deductions. This means that Mark cannot deduct related administration costs, such as credit card charges or tronc system administration fees.
How will tips be fairly allocated?
Mark will need to share the total amount of qualifying tips, gratuities and service charges fairly between workers at the business location. Those who work remotely do not need to be included, although there is discretion to do so. Tips cannot otherwise be allocated between different sites. As the restaurant owner, Mark should look at what is fair and reasonable, taking into account the way in which the business operates, when deciding how to share tips. A new code of practice sets out the following points that Mark will need to consider when deciding on the fair allocation of tips:
- The employee’s role and type of work
- Basic pay
- The hours worked in relation to when tips are received
- Individual and/or team performance
- Seniority and level of responsibility
- Length of service
- Customer intention
What is a tipping policy?
A tipping policy is a document provided by the employer setting out how tips will be allocated, the process for dealing with tips and what customers are being told about tips and service charges, for example, whether they are required to pay a certain percentage. If you have a business that receives tips on more than an occasional basis, you will need to put a tipping policy in place. The good news is that a fair policy could help with staff recruitment and retention.
How can employees check that they are receiving their share of tips?
Workers can ask you for details of all the tips received that are eligible for distribution and the share of these tips that they have been allocated. This means that you will need to keep full records of all tips paid and how these are processed and allocated. As an employer, you will have four weeks to respond to a request.
How 3CS can help
Our expert employment solicitors can provide you with the assistance you need to prepare for and comply with the new legislation.
For advice or guidance in respect of allocating tips, please get in touch.
