The Government is proposing to legislate to create a legal obligation on employers to pass on all tips, gratuities and service charges to their staff. It will also be a legal requirement to distribute collected tips in a fair and transparent manner by following a statutory Code of Practice. It is estimated by the Government that the proposed bill will benefit over a million workers.
- The background
There is currently no legislation regulating the proportion of discretionary service payments that should go to employers and workers. Legislation was introduced in October 2009, prohibiting the use of tips and gratuities to make up the national minimum wage, meaning employees must receive at least the national minimum wage and any tips received must be paid on top of this. In the same year, the Department for Business Innovation & Skills also published a voluntary Code of Best Practice on Service Charges, Tips Gratuities and Cover Chargers, providing practical guidance to employers in the hospitality, leisure and service sectors and to improve transparency.
Following a campaign highlighting abusive tipping practices in 2015, the government launched an investigation into this. A public consultation followed in 2016 asking for views on proposals to end unfair tipping practices and ways to increase transparency for employees and consumers.
In October 2018, plans to ban employers from keeping tips intended for workers were unveiled by Theresa May and this was further confirmed in the Good Work Plan, published by the Government in December 2018. More detail was finally provided in the Queen’s speech on 14 October 2019 where the Employment (Allocation of Tips) Bill was announced.
During the state opening of Parliament, the Queen announced that “My Government will take steps to make work fairer, introducing measures that will support those working hard”. The proposed legislation would apply to employers in England, Wales and Scotland, with the purpose being to promote fairness for workers. The main elements of the bill are:
- A legal obligation on employers to pass on all tips, gratuities and service charges to workers without any deductions.
- A legal obligation on employers to distribute tips in a fair and transparent manner, where employers have control or significant influence over the distribution of tips.
- The requirement for an employer to follow a statutory Code of Practice when distributing tips. The Code will set out the principles of fair and transparent distribution of tips.
The Government also noted its findings from the public consultation in 2016 which found strong evidence of unfair tipping practices. It was discovered that two thirds of employers in hospitality were making deductions from staff tips and two thirds of respondents supported employers having no involvement in tips, which should belong to staff.The importance of the legislation has also been highlighted, with the Government estimating that nearly 80% of tips are now made on card and therefore increasingly being made via employers.
- Practical issues for employers
The precise timescale for implementing the legislation is still unknown. However the Labour Party and trade unions have already expressed their support. Possible practical implications of the law include:
- Small businesses- Kate Nicholls, chief executive of UK Hospitality highlighted that small businesses may need to retain a % of card tips to cover the cost of credit card charges and processing payments. This practice may be prevented under the new legislation, which could add additional costs to businesses.
- Deciding who will receive the tips- the obligation under the bill is only that tips must be distributed in a fair and transparent manner, it does not mention what staff are included such as kitchen and cleaning staff in addition to front of house workers who normally receive the tip.
- Enforcement- it is not yet clear how employers will be monitored to ensure compliance with the law and whether this would take action from the employee, such as by whistleblowing.
The final details of the bill, including the Code of Practice are yet to be disclosed, so watch this space!
The long awaited Employment (Allocation of Tips) Bill
The law and practice referred to in this article has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.