As further news on the employment bill hits the headlines we take a look at the changes to tipping laws which came into effect at the beginning of the month (1st October 2024). As consumers we are of course keen to see our tips go to those who deserve them, but how will the new tipping legislation affect the hospitality industry? We take a look at the good, the bad and the ugly of this new change to tipping laws.

But before we do that. What has changed exactly?

Having viewed The Caterer’s recent Tipping and Payment Summit 2024 webinar featuring Peter Davies, managing director, WMT Troncmaster Services, John Guthrie, employment policy advisor, UKHospitality, Thom Elliot, founder, Pizza Pilgrims and Adam Handling, owner, Adam Handling Restaurant Group, I have a far better understanding of the change.

In a nutshell, it means that legally hospitality businesses will have to distribute tips/service charge to workers at that specific outlet and they will have to do this by the end of the calendar month subsequent to the period in which the tips have been earned.

They will not be able to deduct the costs for managing their Tronc system or credit card payments anymore and the tips and service charges must all be distributed fairly to all workers (including agency staff) by a transparent system proactively shared with all staff. Only those on the payroll are classed as ‘workers’, which means any business partners, sole traders or self-employed etc. are not classed as ‘workers’ and therefore this legislation does not include them. Failure to adhere to this new legislation could risk fines of ÂŁ5,000 per worker claim, plus the redress of any lost tips, negative publicity and damage to the operators’ reputation. So, although there will be no formal inspections, failure to comply will have severe consequences.

The Good

From a good place

Undoubtedly the new tipping legislation has been developed with the best of intentions. It aims to ensure workers get the tips they are entitled to for the work they do (both back of house and front of house and even admin) and aims to eliminate those unscrupulous operators who unfairly absorb tips and service charges into their business as revenue or skim off unfair percentages to cover business expenses.

Consumer reassurance

The publicity around the changes to the tipping law will doubtless offer consumers more reassurance and hopefully mean they are more confident to tip, safe in the knowledge it will go to those who deserve it.

Industry reputation

This will be a positive move for the industry with an end to the ‘wild west’ of tipping which was exploited by the minority and hopefully will help attract people into hospitality as a first-choice career path, with the reassurance that they will receive their tips fairly and transparently.

Inclusive

The new legislation will ensure all workers benefit rather than just say front of house. Those in admin will receive a share, although this will need to be weighted fairly to reflect roles, hours worked, length of service and seniority, and be agreed as a fair system by the majority of the team.

The Bad

Expectation

The recent headlines may drive an expectation with hospitality staff that they will see more in their pay packet. And for some that may be the case, but for the majority who work for responsible operators who already distribute tips and service charges fairly this may not be. Indeed, the requirement to distribute tips by the end of the following month is likely to lead to more variation month to month and possibly lower take-home pay for some, with what operators refer to ‘smoothing’ removed. More of this in ‘The Ugly’.

Red tape

Some businesses are concerned about the administrative burden and potential costs associated with compliance. Andrew Tighe, Director of Strategy and Policy at the BBPA, highlighted that while the legislation aims to ensure fairness, it could lead to increased operational costs for businesses1. This might result in higher prices for customers as businesses try to offset these new expenses2.

Multi-site complexity

For those operators with several sites, some of which may be more busy or premium than others, some of which may have more delivery business than others (which will not generate tips/service charge) previously they may have amalgamated tips across all sites and then distributed in order to mitigate these differences, especially if staff moved between sites.

However, under the new tipping legislation, this will no longer be possible as tips and service charges have to stay specific to the site they are earned in and to the staff who earned them. This may mean some sites will be less attractive to work at (high level of delivery, a quieter or less affluent location) and add complexity to the admin when staff move around sites.

Agency Staff

The issue of agency staff is a thorny one. Previously the fact that agency staff received a higher hourly rate due to the instability of their role made up for not receiving a share of tips. However, this will no longer be the case which may lead to some resentment towards agency staff who seemingly will have their cake and eat it. Although this is possibly something that could be addressed by the weighting system.

Blunt Instrument

As with any legislation it is a blunt instrument, a one-size-fits-all solution and UKHospitality are continuing to lobby for further developments to make it more workable for businesses, whilst still being fair to staff. One key point being the inability to smooth tip/service charges throughout the year…

The Ugly

Seasonal Businesses

Aside from the additional admin the change will mean for businesses, the fact that payments must be made by the end of the following calendar month has a serious consequence for seasonal businesses. For those who do most of their trade in 4/5 months of the year such as Adam Handling’s Ugly Butterfly the change brings a real worry. Previously the prudent measure was to hold back tips in high season to smooth out the difference in low season, giving staff a consistent take-home. The new law will not allow this. So, in the short-term, Adam has made provision for 2025 (which can be done as these are tips earned prior to the 1st of October) but moving forward, when January 2026 hits, staff will find their pay packet sadly light. This means that staff with fixed outgoings like mortgages, rent, utilities etc. will need to actively put money aside to get them through the low season as they will no longer benefit from a consistent take home pay. The hope is that by 2026 the legislation may be tailored to factor in seasonal businesses.

Conclusion

While the new tipping legislation brings much-needed fairness and transparency to the hospitality industry, it also introduces new challenges. Businesses must adapt quickly to ensure compliance and manage the potential financial and operational impacts. As the industry navigates these changes, staying informed and proactive will be key to turning these challenges into opportunities.

What are your thoughts on the new tipping legislation? Let us know on our socials @jellybeanagency

1 www.gov.uk 2 www.express.co.uk