Understanding the New UK Tipping Act: A Guide for Business Owners

On 1^st October 2024, the new UK Employment (Allocation of Tips) Act 2023, commonly known as the "Tipping Act," came into effect. This law has significant implications for business owners, particularly those in industries where tipping is common. In this article, we'll explain the Tipping Act, the types of tipping it governs, and how EasyTip can help businesses remain compliant while maintaining fairness and transparency in tip distribution.

What does the tipping bill govern?

The objective of the new regulations is clearly stated in the Tipping Act and accompanying Code of Practice guidance issued by the UK government:

“The desired outcome of the Tipping Act is to improve fairness for workers by ensuring that the tips consumers leave in recognition of good service and hard work are going to the workers as intended. The Act aims to increase fairness in tipping practices and create a level playing field for employers who already allocate all tips to workers by ensuring that all employers follow the same rules”(from ‘Code of Practice on Fair and Transparent Distribution of Tips’ Page 2 section 1). 

In order to improve fairness of tips collection and distribution practices, the Tipping Act imposes several new rules which businesses need to follow:

Rules
> Tips must be distributed fairly and transparently
> All tips must be paid by the end of each month the tip is received on
> The full amount of tips must be given to staff 
> Must have a clear and accessible tipping policy 
> Tip records must be kept over three years
> Agency workers must receive an equal and fair share of tips

What Does the Tipping Act Cover? 

The Act applies to qualifying tips, defined as those over which the employer has control or influence. These tips are either collected and distributed by the employer or processed through systems that the employer manages. Here’s what the Code of Practice says:

“The determining factor in whether a tip is qualifying or not is whether the employer receives (in the case of employer-received tips) or exercises control or significant influence over (in the case of worker-received tips) the distribution of tips. This is most commonly demonstrated when employers first receive the money and then allocate it to workers” (from ‘Code of Practice on Fair and Transparent Distribution of Tips’ Page 5 section 9)

How does this work for common and individual tips?

The essence “qualified tips” differentiates between two types of tipping methods: individual and common.

1. Common Tips:
   • > Common tips refer to situations where tips are pooled and distributed by the business, usually based on hours worked or other criteria.
   • > Businesses handling common tips must ensure that all tips are fairly distributed and reported to HMRC through payroll. This includes the responsibility to keep tip records for auditing purposes.
   • > Compliance with the Tipping Act is mandatory in these cases​.
     
     
2. Individual Tips:
   • > In contrast, individual tips are those where the customer directly tips a worker, either in cash or through a digital tipping platform like EasyTip. These tips bypass the employer, leaving the allocation in the hands of the customer and distribution in the hands of the platform.
   • > Since the employer has no control or involvement in individual tip distribution, such tips are outside the scope of the Tipping Act. The business is not responsible for reporting or distributing these tips.

How EasyTip Can Help You Stay Compliant

As a business owner, staying compliant with the Tipping Act might seem daunting. However, EasyTip offers solutions that simplify the tipping process while ensuring compliance with the new legislation.

1. > Eliminating Compliance Worries with Individual Tips: The EasyTip platform allows customers to tip staff members directly, removing the business from the transaction. Since the employer does not control or influence the distribution of these tips, they are not subject to the Tipping Act’s requirements. This eliminates the need for businesses to manage tip records or worry about reporting to HMRC.
   

   > Ensuring Compliance for Common Tips: For businesses that pool tips or report tips through payroll, EasyTip offers automated tools that ensure compliance with the Tipping Act. EasyTip’s tronc system can be configured to distribute tips fairly based on hours worked or other criteria. All tips are paid out in full to workers, with no fees deducted from the tip amount​.

   > Transparent and Accessible Records: EasyTip generates a tailored digital tipping policy for your business and keeps detailed records of all tip transactions. EasyTip creates a digital tipping policy in seconds based on your venue tips collection and distribution type. This policy can be automatically shared with all members of staff via the EasyTip app and approved by them immediately. With regards to transaction data, these records are accessible to both employers and staff at all times (even if the employee has changed employment), ensuring full transparency. This feature is especially useful for businesses that need to maintain tip records for auditing or compliance purposes​.  

   > Transaction Fees and Compliance: In venues where tips are pooled or processed through payroll, EasyTip charges related platform fees (for the use of its platform) from customers and/or businesses. This ensures that the staff member receives 100% of their tip, and the business remains compliant with the law. In venues where individual tips are processed directly through EasyTip, the setup has been configured to ensure that money and information flow separately from the business. Such tips are outside the scope of the new legislation and have a different platform fee structure.

2.  

1. Addressing Common Concerns from Business Owners

Business owners often have questions about how the new legislation affects them. Here are answers to some of the most common concerns:

• > Do I need to generate a tipping policy for my staff? If the information and tipping funds flow through your business - yes, under the Tipping Act, you must have a clear and accessible tipping policy if you handle the collection and distribution of tips. With EasyTip’s new tipping policy generator you can create a tailored policy in seconds in our app​. If your business is not involved in collecting or distributing tips, Tipping Policy is not obligatory but is a good practice anyway. Use our app to get a tailored digital tipping policy 
  
  
• > What’s the difference between cash tips and digital tips through EasyTip? If tips are given in cash and not handled by the employer, they are outside the scope of the Tipping Act. Similarly, digital tips allocated directly by customers and processed through digital apps such as EasyTip are managed by the staff themselves, eliminating the need for compliance by the business​.
  
  
• > If my staff collect tips individually, do I need to track these tips? No. If your staff collect tips directly, either in cash or through EasyTip and you are not involved in the process, your business has no responsibility for tracking or reporting these tips to HMRC​.
  
  
•  

Key Takeaways for Business Owners

> For businesses that pool tips or report them through payroll, compliance with the Tipping Act is mandatory. EasyTip can help ensure that tips are distributed fairly and transparently, with all necessary records in place.
> For businesses where tips are collected individually, such as through EasyTip, the Tipping Act does not apply. This allows businesses to continue operations without worrying about compliance, while staff receive 100% of their tips.
> EasyTip offers full transparency: Whether you need automated tip distribution tools or detailed tip records, EasyTip ensures compliance and simplifies tip management for both employers and employees.

Let us help you and your team

By partnering with EasyTip, your business can maintain a fair, transparent, and compliant tipping system while ensuring that your staff are rewarded for their hard work. For more details on the Tipping Act, you can review the full . 

More useful reading

Employment (Allocation of Tips) Act 2023

Code of Practice on Fair and Transparent Distribution of Tips

HMRC Guidance on tips, gratuities, service charges and troncs