What hospitality businesses need to know about the new tipping and gratuity law
From 1 October 2024, the law on how you distribute tips and gratuities will change. While this employment law update will mostly impact hospitality businesses, if any of your employees receive tips, you need to be aware of the changes.
What are the legal changes for how tips are distributed?
Under the Employment (Allocation of Tips) Act 2023, employers must:
Pass on 100% of tips, gratuities and service charges without deductions (except for tax and NI)
Fairly distribute the tips
Keep records of how tips are distributed and share this with any employees who ask.
Passing on all the tips
The first consideration is how you pass on all the tips and gratuities. It’s clear that all of these charges need to be passed on without deductions. This is to prevent situations happening like in The Ivy last year where it was found the restaurant did not pass on 100% of service charges. Many other restaurants have had similar policies over the years.
As you are likely to gather the tips in two different ways - through card and cash payments - you need to have a clear policy and process of how you will make sure all the tips are passed on.
It may mean changing some of your systems and processes to make this happen. Guidance from the Government has also stated that hospitality chains can no longer pool the tips across all sites for central distribution so if this is part of your process, you will also need to look at changing this.
Fairly distributing the tips.
Let’s say you run a busy cafe and all tips - both cash and card - are collected into one pot. You need to let your employees know how that pot of money will be shared. You may want to share it equally across all employees, regardless of their role. Or you may want to allow the table servers to take the cash tips that are paid on top of the service charge (as is the case in some cafes and restaurants).
You also need to decide how often you share the tips. Is it at the end of each day, week or month?
Other factors that you might need to consider is how many shifts someone has worked, if certain times and days are busier than others or if there are more tips on certain shifts. The key here is to decide what fair looks like within your business model and to clearly explain this to your people.
If someone questions fairness, it’s best to have a discussion about this. If you’re unsure about how to fairly distribute tips - because sometimes it’s not so straightforward - then get some advice to make sure you’re fully compliant.
Keep records
Make sure you keep clear records of what is happening. You should also update your policies and clearly communicate these changes across the business. This will give everyone a chance to understand what the change is and why it’s happening.
In a busy hospitality business, it can be hard to keep track of cash and card tips but if you have a robust process in place, with the right record-keeping, it will make for clear evidence should someone feel they are unfairly treated.
Hospitality tips, gratuities and service charges
However you decide to distribute the tips, gratuities and service charges in your business, make sure that it is compliant with the new law on 1 October 2024. If you need any more support in this area, contact Danton and we’ll be happy to help.