The UK hospitality industry is set to experience a significant shift with the introduction of the Employment (Allocation of Tips) Act 2023, coming into effect on 1st October 2024.
This legislation requires the fair and transparent distribution of tips, bringing considerable changes for both employees and employers. As the industry braces for these changes, it’s essential to understand the implications of the Act, the evolving attitudes towards tipping, and the broader impact on the workforce.
Understanding the Legislation and Code of Practice
The Employment (Allocation of Tips) Act 2023, often referred to as the “Tipping Act,” is designed to ensure that tips, gratuities, and service charges are distributed equitably among workers. To support the implementation of this Act, the Department for Business and Trade (DBT) has introduced a Code of Practice, effective from 1st July 2024, which employers must consider when establishing their tipping policies.
Key requirements under the Tipping Act include:
- Passing on all tips to workers without deductions, except for statutory ones such as income tax.
- Distributing tips fairly and transparently, especially when the employer has control over their allocation.
- Maintaining a written policy on the handling of tips and ensuring it is accessible to all workers.
- Keeping detailed records of all tips received and how they are allocated, which workers can request to view.
The Role of the Code of Practice
The Code of Practice serves as a guide to ensure fairness and transparency in the distribution of tips. It outlines principles that employers should follow, including avoiding unlawful discrimination and ensuring tipping policies are clear and accessible to all staff, including agency workers. Employers are encouraged to consult with their employees to reach a consensus on tipping policies, which should be reviewed regularly to adapt to any changes in the workforce or business practices.
The Code also emphasises the importance of resolving disputes at the local level, with support from Acas for mediation if necessary. While the Code itself is not legally binding, employment tribunals are required to consider it when ruling on disputes related to tipping practices.
Public Attitudes Towards Tipping
Tipping has always been a divisive issue among consumers. Some argue that service charges should be included in the price of meals and services, ensuring fair wages for staff without relying on tips. Others prefer the discretionary nature of tipping as a reward for exceptional service. The new legislation brings this debate to the forefront, encouraging a reassessment of the UK’s tipping culture.
Whether consumers will feel more inclined to leave a tip knowing it will directly benefit the employee, or if the new rules will shift expectations towards including service charges in the final bill, remains to be seen. However, this conversation is gaining momentum.
Service Charges: To Include or Not?
The inclusion of service charges on bills has long been contentious. The new legislation does not mandate the inclusion of service charges in menu prices, leaving it to individual businesses to decide their approach. Employers must ensure that any service charges collected are distributed fairly among workers, in line with the principles set out in the Code of Practice.
For businesses, this represents a strategic choice: should they incorporate service charges into their pricing, potentially simplifying the customer experience, or retain the traditional tipping model? Each option has its benefits and challenges, and businesses will need to consider their clientele and operational requirements when making this decision.
Impact on Employees and Earnings
A key outcome of the new tipping law is its effect on employee earnings. With a transparent and equitable system for distributing tips, employees are likely to see an increase in their take-home pay, especially as tips can no longer be withheld by employers.
This change is particularly timely, given the rising cost of living, and could provide much-needed financial relief for many hospitality employees.
Additionally, the requirement for employers to maintain detailed records of all tips and their distribution introduces a new level of predictability and transparency. This can be particularly beneficial for workers when applying for loans or mortgages, as it ensures that all income, including tips, is properly documented.
Legal Responsibilities of Employers
The new legislation and accompanying Code of Practice introduce clear legal responsibilities for employers. Beyond passing on all tips to workers, employers must implement a written policy on tip allocation, ensure transparency in their distribution, and keep records for at least three years. Employers are also required to resolve any disputes fairly, with workers having the right to take their concerns to an employment tribunal if they believe their tips have been mishandled.
The Importance of Employer-Employee Communication
Navigating this new landscape will require open and ongoing communication between employers and their teams. Employers must engage with their teams, explaining the new system, listening to their concerns, and ensuring that everyone understands how tips will be managed. This engagement is not only vital for compliance but also for maintaining a positive work environment and high employee morale.
Conclusion
The implementation of the Employment (Allocation of Tips) Act 2023 marks a significant moment for the UK hospitality industry. While it promises greater fairness and transparency for employees, it also challenges businesses to adapt to new legal and operational standards. The success of this new tipping regime will largely depend on how well businesses and their employees communicate and cooperate to embrace these changes.
As the implementation date approaches, it will be interesting to observe how consumer behaviour shifts, how employees adapt, and how the dynamics within the hospitality industry evolve. Supported by the Code of Practice, this legislation could well be the tipping point for a more equitable and transparent service industry in the UK.
Hospitality People Group is dedicated to exploring all opportunities to provide insights and support our clients and their people strategies. Our commitment ensures businesses can access valuable insights to create lasting value and positive experiences for their employees and guests.
If you would like to discuss your people strategy further, then please get in touch.
Guy Lean, Managing Director – Madison Mayfair
+44 20 8 600 1180 / +44 7813 009787
guylean@madisonmayfair.com
Dan Akhtar, Managing Director – HPG Advisory Services
+44 208 600 1166 / +44 7808 157796
dan@hpgsearch.com
Chris Denison Smith, Managing Director – FM Recruitment
+44 20 8 600 1160 / +44 7775 711923
chrisdenisonsmith@fmrecruitment.co.uk
Andrea Shaw, Director – FM Recruitment
+44 20 8 600 1160 / +44 7714 236469
andreashaw@fmrecruitment.co.uk
