New Law on Tips: How to Stay Compliant

A new law that requires British businesses to hand over 100% of customer tips to workers has come into effect, signalling a significant change in how the hospitality and service industry should manage gratuities. The legislation officially came into force on 1st October, prohibiting companies from retaining any portion of tips from cash or card payments.

The Impact of the Change

This reform will benefit over three million workers at restaurants, cafes, pubs, hairdressers and taxi firms across the country. Employees denied their fair share of tips can now bring claims to an employment tribunal under the new law.

This change comes after longstanding concerns that many small businesses, particularly in hospitality, withhold or unfairly distribute tips that should go directly to employees.

The Department for Business and Trade anticipates that the law will redirect a mind-boggling £200 million in tips to workers' pockets, supporting many of the UK’s lowest-paid employees. Hospitality union Unite strongly endorsed the move, with its organiser Bryan Simpson describing it as a "massively welcome" step for workers.

Mixed Reactions from Businesses

While UK workers and their advocates have widely welcomed the new legislation, some business owners have voiced concerns. Nisha Katona, founder of Mowgli Street Foods, acknowledged the importance of the law but warned that companies unprepared for the changes may face challenges in compliance, leading to additional financial pressures.

Katie Nicholls, CEO of UK Hospitality, shared a similar sentiment, praising the fairness of the new legislation while expressing concern about the added burden on a struggling sector. Nicholls argued that while the law ensures the fair treatment of workers, it is yet another cost placed on businesses facing rising overheads.

Many businesses in the UK have already implemented fair tipping practices. Emma Webb, owner of The Kitchen in Ilminster, Somerset, explained that her staff already benefit from a transparent system where they equally distribute all tips at the end of each day. She noted that this law will not require her to change her system.

On the other hand, companies like the steakhouse chain Miller & Carter have faced criticism for how they manage tips. Unite’s Bryan Simpson highlighted concerns that some managers control tips at their discretion, leading to claims of unfair allocations. In response, M&C’s parent company, Mitchells & Butlers, welcomed the new law and confirmed that they will review their existing policy to ensure full compliance.

How Business Owners Can Stay Compliant

With the new legislation, business owners must ensure compliance to avoid penalties. Here are the key steps every business should take:

• Pass 100% of Tips to Employees: This includes any service charges or gratuities added to bills. The law is clear: businesses must not withhold any portion of these payments.

• Follow the Tips Code of Practice: Under the new code of practice, employers must distribute all tips to workers by the end of the following month.

• Implement a Transparent System: Ensure your tip distribution process is transparent and democratic. If you pool tips, all employees should know how the system works.

• Review Existing Policies: Businesses with tipping policies should review them to ensure they meet the new legal standards. Consider seeking professional advice to ensure compliance.

• Prepare for Potential Claims: Employees who believe they have not received their rightful share of tips can bring a claim to an employment tribunal. It is essential to keep accurate records of all tips received and how you distribute them, as you may require this evidence during a dispute.

The Importance of Compliance

Staying compliant with the new tipping laws is not just a matter of legal obligation but also essential to maintaining a positive workplace culture and protecting your business’s reputation. Employees who feel fairly treated are more likely to be happy and motivated, boosting retention and customer satisfaction.

Failure to comply with the law can result in legal disputes, financial penalties and damage to reputation. Ensuring fair treatment of workers reflects well on your company and demonstrates your commitment to ethical practices.

It is in every business owner’s best interest to take the necessary steps to remain compliant, providing clarity and fairness to their workforce while avoiding legal pitfalls.

Tipping the Balance

Adapting to the new legislation on tipping may be a financial juggling act for small businesses operating on thin margins. Fortunately, financial options are available to help bridge the gap between your existing revenue and ‘lost’ gratuities.

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