UK tipping legislation & lessons for Aussie operators

Tipping has long been a bone of contention in the UK hospitality industry – with staff unhappy at the way that tips are allocated, at not receiving their fair share, or not even having visibility of the data to know what their rightful cut is or to prove that their employer hasn’t passed it on. We’ve seen several high profile restaurants publicly shamed for not fairly sharing tips, and there can be no doubt that they are just the tip of the iceberg. But whilst there is uproar at these unfair practices, there has, until now, been no legal obligation on restaurant operators to provide information to staff about tips, and no requirement to pass all service charges and gratuities on to the very people who have served their happy customers.

That’s about to change though, with the Employment (Allocation of Tips) Act 2023 coming into force in 2024. The new legislation will:

• Make it unlawful for a restaurant to not give staff 100% of all service charges and gratuities.
• Require restaurants to distribute tips fairly between employees.
• Require employers to have a written tipping policy.
• Mandate that restaurants keep records of all service charges and gratuities they receive and provide this information to staff, so that they can see that they are receiving their due.
• Provide for staff to take employers to a tribunal if they have not received their fair share of tips.
• Stop employers from deducting card processing costs from the tips before they distribute them to staff.
• Introduce a statutory code of practice with advice on how tips are allocated – for example, that larger operators should not pool tips between multiple sites.

Whilst the act does not lay down the law about the method of allocation, it does encourage employers to use a tronc system.

The act is set to benefit over 2,000,000 workers in UK hospitality, putting as much as £200,000,000 into their pockets in one of the biggest payment shakeups the industry has seen.

So the new law is good news all round for hospitality staff. It will also be welcomed by diners, who in a government consultation stated very clearly that when they give a tip, they it to go to the person that served them. For hospitality businesses, it offers an opportunity

But for hospitality business operators, there’s some planning needed before the legislation hits the statute books. They’ll have to ensure they’re ready for the new rules by:

1. Deciding on a tipping approach – whether to use a tronc system, or cashless ‘direct’ tipping, where the payments go directly to the staff. Whilst the legislation certainly does not make any demands on type of tip management, operators should be aware that changing systems once the legislation is in place could be tricky, so it’s best to make the decision before the law is enacted.
2. Considering whether to eliminate tipping – increasingly restaurants are taking this approach, whereby the customers’ bill has service included, and staff are paid a flat wage every week. Whilst it initially seems revolutionary to traditional operators, the upside is simplicity, fairness and for staff, the certainty knowing what they’ll earn each week or month.
3. Budgeting for the additional costs – like most legislation, there are costs to implementing it. Under the new laws, employers can no longer deduct card processing fees from tips that were paid by card – they have to pass 100% of the tip to staff. But those card processing fees still have to be paid – by the operators. Then there’s the administrative cost of implementing and complying with the new legislation – setting up new systems, making information available to staff and monitoring the whole process. Those costs are unavoidable, but smart planning will help to make them manageable.
4. Ensuring that staff have visibility of all service charges and tips. The simplest way to do this is through your POS – check that your POS has the functionality to show each employee their individual tip total at the end of each day or shift.

The new legislation is great news for hospitality workers, will help operators to keep staff engaged and motivated. It will require some preparation, but with forethought, planning and the right tools and systems, you can be ready to embrace this new, fairer way of treating your valued staff, giving them the incentive to provide outstanding customer service.