Tips and Gratuities – New Rules for Employers

Posted:18th October 2021

The Government has announced plans to regulate the treatment of tips gratuities and other payments to workers in order to protect them from unfair deductions. The background to the  announcement is a response to a consultation process started in 2016 which was a response to widespread concerns that some employers were depriving workers of the benefit of payments intended for their benefit altogether, were deducting part of their tips as an administrative charge or in some cases are charging a sales charge payable from tips collected .The practice of Employers typically in the restaurant business sector levying a service charge as an ‘encouragement’ to tip has also been considered.

The view taken by the Government in its response to the consultation is that customers need a greater understanding of how they are charged, how they can make sure that tips can be made to reward good service and be confident that those being rewarded by their payments benefit directly from the payments. It was also felt that a voluntary code of practice for the treatment of tips introduced in 2009 was not being sufficiently recognised or applied by many employers.

The upcoming Employment Bill will require Employers

1. Not to make any deductions from tips other than required to comply with the lawful deductions for income tax.

2. To be transparent and fair in how tips are collected and distributed. Employers will be encouraged to develop a Policy on tipping and will be required to apply that policy fairly ensuring payments are distributed within a month of the tip being received. Employers will be permitted to distribute tips using a formal pay arrangement known as a ‘tronc’ in order to show how the tips have been treated for tax purposes (tips have always been regarded as income which ought to be declared by the worker receiving them).

3. To respond to a workers request to see their tipping record.

4. To comply with a statutory code of practice on tipping to replace the voluntary code.

The rights will be given ‘teeth’. Workers who believe their Employers are not following the rules will be able to complain to an Employment Tribunal to enforce their rights.

The Government has promised to introduce the Employment Bill as soon as Parliamentary time becomes available however the new rules are unlikely to become effective until at least 12 months after that.