As of October 2024, significant changes have been introduced to how businesses handle tips and gratuities. In this blog we will cover understanding the new tipping policy law. The new rules will ensure that workers receive 100% of the tips and service charges left by customers, offering greater transparency and fairness in the distribution process. For employers, it’s essential to understand and comply with this new legislation to avoid penalties and ensure staff are treated equitably.
Here’s a breakdown of the new tipping policy law and what employers need to know.
Understanding the new tipping policy – What Does the New Law Say?
The legislation mandates that all tips and service charges collected from customers, whether given in cash or via card payments, must be handed over in full to employees without deductions. This includes tips distributed through a tronc system, which should be managed independently of the employer. More information can be found here on a tronc system – https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye20160
One of the key aims of this law is to prevent employers from keeping any portion of the tips or using them to offset wages. As a result, employees must receive 100% of the gratuities left by customers, and these tips should be distributed in a manner that is both fair and transparent.
Record-Keeping Requirements
To ensure transparency, employers will be required to maintain clear and accessible records showing how tips are distributed. This is crucial not only to comply with the law but also to demonstrate to employees that they are receiving their fair share of tips.
Records must be kept for a minimum of three years, and employees have the right to request information about how tips are being allocated. Employers must respond to these requests promptly and within a reasonable time frame.
Voluntary Code of Practice
Although the law mandates fairness in tip distribution, it will encourage employers to adopt the voluntary code of practice for tipping, which provides additional guidance on best practices. This code encourages businesses to:
- Ensure tips are shared equitably among all workers, including those in non-customer-facing roles where applicable.
- Be transparent with employees about how the tronc system operates and how tips are allocated.
- Engage with staff in discussions about the tipping policy to ensure fairness and address any concerns.
By following these guidelines, employers will create a positive working environment and reduce the likelihood of disputes over tips.
Penalties for Non-Compliance
Employers who fail to comply with the new tipping policy law face serious consequences. If employees feel that they are not receiving their rightful share of tips, they can take the matter to an employment tribunal. If found to be in violation of the law, businesses could face financial penalties, damage to their reputation, and possible legal costs.
To avoid these risks, it’s essential that businesses review their current tipping practices, ensure they align with the new rules, and communicate clearly with employees about any changes.
What Should Employers Do Now?
With the law already in force, employers should take proactive steps to ensure they are fully compliant. Here are some practical steps you can take:
- Review Tipping Procedures: Assess your current tipping distribution methods, whether through a tronc system or otherwise, to ensure they meet the requirements of the new law.
- Educate Staff: Make sure all employees are aware of their rights under the new law and understand how tips will be distributed.
- Maintain Clear Records: Ensure you are keeping detailed and accurate records of all tips received and how they are allocated among staff.
- Implement a Fair Policy: Consider adopting the voluntary code of practice to ensure transparency and fairness in the tipping process.
- Communicate with Employees: Encourage open discussions about the tipping policy to address any concerns and build trust with your team.
Tronc Schemes
Third-party tronc schemes are available. Businesses can hire an external provider to manage the system on its behalf. There are many advantages in terms of time and ensuring that legislation is followed. However, depending on the business size, it can be expensive.
Conclusion
Taking these steps, employers will remain compliant, adopt a positive working culture, and ensure that all employees feel valued and fairly compensated for their work.
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