All tips will go to staff under new plans to overhaul tipping practices set out by the government, providing a financial boost to hospitality workers across the country.
Legislation on tipping will be supported by a statutory Code of Practice, developed in partnership with workers and employers to set out the principles of fairness and transparency.
Most hospitality workers – many of whom are earning the national minimum wage or national living wage – rely on tipping to top up their income. But research shows that many businesses that add a discretionary service charge onto customer’s bills are keeping part or all of these service charges, instead of passing them onto staff.
The government will make it illegal for employers to withhold tips from workers. The move is set to help around 2m staff working in one of the 190,000 businesses across the hospitality, leisure and services sectors, where tipping is common place and can make up a large part of their income.
This will ensure customers know tips are going in full to workers and not businesses.
Kate Nicholls, CEO of UKHospitality said: ‘UKHospitality supports the right of employees to receive the deserved tips that they work incredibly hard for. The hospitality sector as it begins to rebuild after 18 months of restrictions and enforced enclosure is already creating new jobs and driving the jobs recovery. Ensuring employees receive the tips they earn will further strengthen the sector’s ability to create jobs and support the wider economic recovery.
‘For hospitality businesses, though, customers tipping with a card incurs bank charges for the business, and many also employ external partners to ensure tips are fairly distributed among staff. With restaurants, pubs and other venues struggling to get back on their feet, facing mounting costs and accrued debts, we urge the government to continue to work closely with the sector as it introduces this legislation to ensure this works for businesses and employees.’
Tipping legislation will build on a range of government measures to protect and enhance workers’ rights. In the past 18 months, the government has introduced parental bereavement leave, protected new parents on furlough, and given millions a pay rise through a higher minimum wage.
Labour markets minister Paul Scully said: ‘Unfortunately, some companies choose to withhold cash from hardworking staff who have been tipped by customers as a reward for good service.
‘Our plans will make this illegal and ensure tips will go to those who worked for it. This will provide a boost to workers in pubs, cafes and restaurants across the country, while reassuring customers their money is going to those who deserve it.’
Moves towards a cashless society have accelerated dodgy tipping practices, as an increase in card payments has made it easier for businesses to keep the funds.
80% of all UK tipping now happens by card, rather than cash going straight to staff. Businesses who receive tips by card currently have the choice of whether to keep it or pass it on to workers.
The legislation will include:
- a requirement for all employers to pass on tips to workers without any deductions;
- a Statutory Code of Practice setting out how tips should be distributed to ensure fairness and transparency; and
- new rights for workers to make a request for information relating to an employer’s tipping record, enabling them to bring forward a credible claim to an employment tribunal.
Cash tips are taxable but are not generally liable for National Insurance, and have to be included on self assessment tax returns. When tips are pooled together and shared out - this is called a tronc. The person who looks after it is called the ‘troncmaster’ and they are responsible for making sure income tax is paid through the PAYE system.
Tronc systems pool tips and service charges and distribute them through a separate payroll. Where a troncmaster or other independent person determines how the funds will be distributed, no National Insurance contributions are due.
‘The most effective way to ensure fairness amongst employees and to comply with the expected new legislative requirements, is to have an independent troncmaster oversee the process and I am glad the government has recognised this,’ said Peter Davies, managing director at WMT Troncmaster Services.
‘We are concerned that the proposals will force businesses to absorb costs and deductions from tips imposed by others (such as card companies) and that not all businesses will be able to afford this in the current financial climate.’
Under the changes, if an employer breaks the rules, they can be taken to an employment tribunal, where employees can be forced to compensate workers, often in addition to fines.
Tipping legislation will form part of a package of measures which will provide further protections around workers’ rights.
