It's all change for how employers manage tips

We consider the changes that employers might expect following the government’s response to its 2016 consultation on tipping practices

23 November 2021

In 2016, the government launched a consultation seeking views on proposals to ensure the fair and transparent treatment of tips, gratuities, cover and service charges, as a result of concerns raised about the treatment of these additional payments to staff.

The consultation set out various proposals for further action to make tipping fairer, the underlying objectives of which were that:

  • all discretionary payments for service should be voluntary for the consumer;
  • all discretionary payments for service should be received, in full, by workers where appropriate; and
  • the allocation of such payments should be transparent to the consumer.

Response

The government has now responded to the consultation confirming its intention to legislate to ensure tips left for workers go to them in full, "ensuring they get the tips they deserve in full and giving customers reassurance". The proposed measures are intended to be brought in as part of the upcoming Employment Bill and, broadly speaking, will require employers to pass any tips on to workers in full without deductions.

What changes are proposed?

More specifically, the proposed legislative measures are expected to include:

  • Requirements for employers not to make any deductions from tips, including administrative fees, except deductions required for tax purposes. The principle underpinning the consultation is that the government believes that all discretionary payments for service (after tax) should be received by the worker, although employers will still be able to manage the distribution of tips through a tronc system.
  • To make the distribution of tips fairer and more transparent, employers will need to introduce a written policy on how they will deal with the distribution of tips and keep a record of how tips have been dealt with. As noted above, employers will still be able to distribute tips via a tronc, but the tip must be distributed no later than the end of the month following the month in which it was paid by the customer.
  • Provisions should also be put in place to allow workers to request information relating to an employer’s tipping record. Although businesses will retain discretion as to how to design and communicate any such tipping record, responses should be given within 4 weeks.
  • A statutory Code of Practice on Tipping, which will replace the current voluntary Code of Practice. Evidence from the consultation showed that the voluntary Code is not widely used or understood, and neither consumers nor employees thought it provided a fair and transparent process.
  • Where an employer fails to comply with their obligations under the new measures, employees will be able to enforce their rights in the Employment Tribunal. The statutory Code of Practice will not be directly enforceable in legal proceedings but any failure to comply with the statutory Code could be taken into account by the Employment Tribunal in the determination of liability and/or sanctions.

Next steps for affected employers

There is, as yet, no proposed date for the Employment Bill – it will be brought forward “when Parliamentary time allows”. Whilst this means no immediate changes are needed, these proposals may represent a significant change as to how tips are distributed for some employers. Affected employers should therefore consider their current tipping practices and the extent to which they may need to change their practices when the changes become law. In the meantime, the proposed legislative changes may be adopted by some employers as best practice not least given the current staff shortages in the hospitality sector.

We will keep you updated on progress.

If you have any questions about how these developments may affect your business, please contact Katie Russell or anyone else in the Burges Salmon Employment team, who will be happy to advise you.

Key contact

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Katie Russell Partner

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