Preparing For The New UK Tipping Law: Our Top Tips

With the hospitality sector on the cusp of a tipping transformation, understanding what you need to do to be fully prepared for the Fair Tips Act is very important.

While the new regulation was initially announced to take effect on July 1st, 2024, the government postponed its implementation to October 1st, 2024, giving businesses more time to prepare.

Business owners in the hospitality sector will need to adjust their business operations and policies to conform to the new regulations on fair allocation of tips.

This shift promises to reshape how gratuities are handled, directly affecting both hospitality workers and hospitality business owners. Your current tipping practice is due for a tune-up, but where should you begin? First of all, no need to stress.

In this article, we’ll discuss our top tips to help your business comply with the new UK tipping law and avoid frustrating pitfalls.

Understand the New UK Tipping Law

The Employment (Allocation of Tips) Act 2023, which received Royal Assent on 2 May 2024, came about after widespread public concern over unfair distribution of tips, such as employers retaining the full service charge, or charging workers admin fees for handling tips.

At its very core, the new law aims to:

• Guarantee that all tips, gratuities, and service charges reach workers in full.
• Forbid employers from subtracting any portion of tips.
• Ensure fair distribution of tips among all employees.
• Make it mandatory for employers to maintain clear and open tipping policies.
• Provide workers with access to tipping records.

A Code of Practice supports the law and is required for all employers to refer to when designing and implementing their tipping policies and practices.

Crucial aspects of the new law include the requirement for employers to maintain a proper tipping record for a three-year period and to distribute these earnings through payroll to ensure that correct income tax and National Insurance contributions are accounted for. Also, employees can now make a claim to the Employment Tribunal if businesses don’t follow the rules.

The law applies to cash tips with employer control and those received through card payments, and each employer decides the criteria for the distribution of qualifying tips.

Remember that fairness doesn’t necessarily mean that tips are split evenly among all workers, as there are factors to consider (e.g., job role, seniority, performance, customer intent, etc.).

Review Your Current Tipping Practices

Taking a good look at how you handle tips is super important with the new tipping law rolling out in the UK. This should be your first step.

Start by examining how you currently collect tips. Are they primarily received in cash or through card transactions? Next, consider how you record these tips. Do you have a system in place to track each tip accurately, or is it done manually?

Think about how you distribute tips among your staff. Are they divided equally among all employees, or are they based on individual performance or some other factor?

Do you deduct a percentage or negotiate salaries for a share of tips?

Do you pay tips to all workers, including agency workers or those on zero-hour contracts? Stay cautious: you may need to review all contracts and agreements with eligible agency workers to make sure they cover tipping entitlement.

We know it might seem like a lot, but these are the questions you have to consider when reviewing your current tipping practices to make sure you stay compliant.

Consult With Your Employees

Your employees are the backbone of your business, and their satisfaction directly influences customer service quality. So, before you write or rewrite your new tipping policy, it’s important that you engage with your employees in preparing for the new tipping law.

Engage with them to:

• Inform them about the new tipping law and how that will affect them
• Gather feedback on how they believe tips should be distributed (you can do staff meetings or surveys, for example). Not only is this inclusive, but it can also mitigate future grievances.
• Discuss the potential implementation of a transparent tronc system for tip distribution.

Make sure you include all your employees in this conversation: front-of-house, back-of-house workers, freelancers… By involving everyone in the decision-making process, you'll have a smoother implementation and guarantee fairness for workers.

Update Your Tipping Policy

If you already have a tips policy in place, getting it up to speed with the new UK tipping law is essential. If you don’t, then you are obliged, as a business owner, to write one and share it with your entire staff.

You want to be clear with your staff and customers about where the tips are going. Now, the law says that all tips must go directly to the workers, so you need to get rid of any old policies that might have kept some of those gratuities for the business.

Make sure everyone on your team understands the new policy and can easily find it if they need to check something. Here's how to update your tipping policy the right way:

• Create a clear, detailed policy that follows the new rules.
• If needed, talk to a legal expert or someone in human resources to make sure your updated policy is legally sound.
• Let your team know about the changes, and give them any training they might need.
• Put the policy in a place where everyone can see it, like on a noticeboard, and include it in employee handbooks (you don’t have to share it publicly with customers). You can also send it by email.
• Keep documentation of the policy's implementation and any updates.

According to the Code of Practice, “the written policy should include how tips are accepted, how tips are allocated and distributed, and what steps the employer takes to ensure tips are handled fairly and transparently in accordance with the Tipping Act.”

Implement a Tronc Scheme

You've probably heard about the Tronc system, which can help manage tips and service charges in the hospitality industry. You may even have one implemented already, and if that’s the case, great – just make sure it follows the new rules.

If you don’t, then it’s something that we recommend you consider implementing. A Tronc is essentially a system for collecting and distributing tips separate from the employer. It is overseen by a Troncmaster.

The Troncmaster is typically a person trusted within the business, like a senior employee (head waiter, for example). Alternatively, you can outsource this role to a third-party Tronc management company and get an independent Tronc operator.

You can also leverage digital solutions like TipJar® to help distribute tips, which simplify and streamline the entire tipping process. This can really make your life easier.

Be aware that if you don’t follow the rules, your employees can bring a claim to the Employment Tribunal.

Playing By the Rules

If you don't follow the new tipping law, employees can take their complaints to the Employment Tribunal to sort things out. And hospitality businesses that don't play by the rules could end up facing penalties and a hit to their reputation. So it's really important to make sure you're on top of these new tipping practices!

There will be no transition period, so make sure you make all the necessary changes ahead of time to guarantee a fair and transparent distribution of tips and keep peace of mind.

At Outmin, we understand that this new law can be an extra burden for hospitality businesses. Although we can all see the value of the new law, it is one more admin headache for business owners.  

Fortunately, there are solutions available to ease this admin burden. Although we don’t manage tipping, we specialise in simplifying operations for hospitality businesses. Our tailored solutions automate tedious accounting tasks, allowing you to focus on what truly matters - providing exceptional service to your customers.

If you want to know more about how we can help or simply have some questions about the new law, feel free to reach out. We’re happy to help!