The New Employment Tips Bill: Expert Insights from James Shepherd
We are thrilled to share our latest blog post on the ever-important topic of allocation of tips bill. This post dives into tipping in the hospitality industry and tackles big questions about the new bill's impact on businesses. We invited James Shepherd from Warrener Stewart to have a conversation about the new tipping bill. Warrener Stewart is an expert team of experienced chartered accountants, chartered tax advisors and registered auditors.
EasyTip -"Hi James, Can you summarise key changes being introduced by the new Employment Act?"
James Shepherd- "So the primary purpose of the Employment (Allocation of Tips) Act 2023 is to ensure the fair and transparent allocation of tips, gratuities and service charges (referred to collectively as “tips”). Until the introduction of this new employment act, there has been no legal framework enforced over tips. In summary, the key changes being introduced are:
> Fairness: The act will require tips to be distributed fairly amongst workers, which can include a mixture of permanent staff, directly recruited staff, agency workers, and zero-hours contract workers.
> Transparency: Employers will be required to create a written policy on tips and must keep a record of tips received and distributed.
> Employees will have the right to request information on this record and this can be requested every 3 months.> Protection: Tips will be required to be distributed by the end of the following month in which they were earned. They must be passed onto staff in full, without any deductions by the employer.
> Enforcement: Employers should ensure they have fair processes in place for resolving issues. The Acas Code of Practice on disciplinary and grievance procedures should be followed by employers and workers.
It should be noted that the code does not set out an exhaustive list of factors for employers to consider. Instead, it provides overarching principals on what fairness is for the purposes of the Tipping Act, the areas in which employers need to make decisions to comply with their duties and how they should apply these principals in their specific place of business."
EasyTip- " In your opinion James, what are the responsibilities of employers under the new law?"
James Shepherd- "1. Employers will have a number of responsibilities under the new law and will need to start thinking about how they will adhere to these in the coming months before the act comes into effect.
2. The creation of a written policy on how tips are dealt with at the place of business and they must ensure it is made available to workers. This should, at a minimum, detail what qualifies as a tip, how tips are distributed, who tips are allocated to and how they are apportioned, the factors considered in the allocation of tips, when tips will be distributed, if a tronc system will be utilised, how tips will be recorded and what steps the employer takes to ensure tips are handled fairly and transparently in accordance with the Tipping Act, etc.
3. Make the written policy available to staff and provide an accessible format to any worker with a disability. Inform staff of any changes made to the policy.
4. Ensure the tips are passed onto staff in full as the employer will now be prohibited from making deductions from tips for reasons such as processing fees, breakages, etc.
5. Consider whether there may be legal or contractual requirements to engage in formal collective consultation where a tipping system affects terms and conditions around pay that are covered by a collective agreement with a recognised trade union or an agreement made under the Information and Consultation of Employees Regulations 2004.
6. Keeping a record of tips which must be maintained for a period of three years, beginning with the date on which the tip was paid. The records must be stored, processed and disposed of in line with data protection legislation, as defined in the Data Protection Act 2018. Using a product such as EasyTip will be very useful in maintaining a record as the software incorporates this feature and ensures compliance with the relevant acts."
EasyTip-"So James, what happens if an employer fails to comply with the Act?"
James Shepherd- "Employers will have to ensure they have a fair process in place for resolving issues. In the first instance, internal processes should be used to resolve the issue. The Acas Code of Practice on disciplinary and grievance procedures should be followed by employers and workers.
Should internal processes not resolve the issues then under the Tipping Act workers can enforce their rights through the employment tribunal system. If the tribunal finds the complaint to be well founded, it is empowered to order the employer to revise a previous allocation of tips, make a non-binding recommendation on a previous allocation of tips, or order the employer to pay a worker compensation up to £5,000.
As well as the financial consequences of breaching the tipping act, there is also the loss of reputation to be considered which in the hospitality sector is something that can have a significant effect on business."
EasyTip- "What are the benefits of collecting tips via third parties such as tronc agencies or digital tipping platforms such as EasyTip?"
James Shepherd- "The main purpose of the Act is to ensure the fair and transparent allocation of tips. Third parties, such as tronc agencies or product providers such as EasyTip, will ensure you are compliant with the Act in this respect. They will also help to reduce the administrative burden the new Act will have by taking control of the record keeping.
The new act will not change the tax and national insurance treatment that is currently charged on tips. However, using a tronc agency or digital tipping platform can help reduce the amount of NIC payable on tips.
For example, if a £100 tip was added to the bill and paid via card, and the employer did not have a tronc or digital service platform, the employer will be liable to pay 13.8% Employers’ National Insurance Contributions (NIC) by adding this onto the employees’ salaries. The employee will additionally have to pay PAYE and Employees’ NIC on the tip (i.e. additional salary) that gets paid onto them.
With a tronc or digital service platform in place, which is independent to the business, the employer will be exempt from paying 13.8% Employers’ NIC on the tip. Additionally, although the employee will still have to pay PAYE, they will also be exempt from paying Employees’ NIC on their share of the tip."
EasyTip- "The changes create additional administrative burdens on the businesses but is there a silver-lining in the new Act?"
James Shepherd- "The short answer to this is yes. The purpose of the act is fairness and transparency, which are two qualities of a well-run business.
One of the main concerns of customers that leave tips is not knowing where the tip will go. It is often assumed that it will end up in the business and not in the pockets of those who helped improve their experience. This can result in customers reducing their tip or even prevent them from leaving a tip at all.
The Act promotes greater fairness in tip distribution among employees, ensuring that all workers receive a fair share of gratuities based on predetermined criteria rather than arbitrary methods. By requiring employers to be more transparent about how tips are collected and distributed, the Act can create trust and confidence among both employees and customers.
Fairer tip allocations can lead to increased employee satisfaction and morale. When workers feel that they are being fairly compensated for their service, they are likely to be more motivated and engaged in their work. Having a strong motivated work force is the backbone to any business in achieving its goals.
Businesses that are ethical, socially responsible and demonstrate a commitment to fair treatment of employees are valued by customers. This can give them a competitive advantage in their respective industries."
EasyTip- "What do you think these changes will do to the practice of collecting service charge?"
James Shepherd- "I mentioned previously that one of the main concerns a customer faces when leaving a tip is not knowing where it will end up. Being more informed will allow customers to make decisions which could lead to the increase of tips left in the future.
Businesses may make a bold move and abandon service charges on the bill altogether in the hope that the act will help customers make a more informed decision and leave a generous tip themselves.
I believe the act will be very welcomed by staff and customers to the point it will help promote the amounts of tips left. However, the additional administrative burden and potential for legal cases faced by businesses has come at a time when the cost of living and economic uncertainty is already putting a burden on the hospitality sector.
The use of platforms such as EasyTip may become the preferred method of leaving a tip as the customers will then know where the tip is being allocated, that is in compliance with the law, and that it will be subject to less NIC."
As James suggests, it's important to stay ahead of the new legislation, and there are some clear guidelines to follow. If you need any additional guidance or support on staying transparent, fair and compliant, get in touch here.
