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Legislation proposal to make it illegal for businesses to retain staff tips in the hospitality industry

The government have proposed new legislation to ensure that tips earned by workers in the hospitality industry are properly paid to them as intended by customers, rather than being retained by the employer as often happens in practice.

The hospitality workforce in the UK is made up of around 2 million people and many of them are on minimum wage. Tips make up a large proportion of their income so this proposal will bring huge benefits to them. Since 2009, tips have not been included in the calculation of salary to meet minimum wage levels but evidence suggests that businesses often retain discretionary ‘tips’ or service charges as opposed to passing them on in full to their staff.

Originally planned for introduction in 2015, no further steps were taken to make the change, even after a consultation process in 2016. As the world moves into an increasingly “cashless society”, research show that around 80% of tips are paid with cards. Businesses currently have the choice of whether to keep card tips or to pass these on to workers and that is what the Government are trying to redress. Increased card tipping, combined with the ability for businesses to not distribute these fairly, has seen increased pressure on the government to implement plans for change. Labour Markets Minister Paul Scully said “Our plans will make this illegal and ensure tips go to those who worked for it.”

Under the planned new legislation, it will be illegal for businesses to fail to pass on 100% of tips to staff without deduction. A statutory Code of Practice will set out principles of fairness and transparency in regard to tips that employers must take into account.

Employers will be required to have a policy on tipping, and distribution of tips will have to be done fairly and transparently in any case where the employer controls the distribution of tips.

Records showing the distribution of tips will need to be kept and employees will have the right to request a copy and have it produced within 4 weeks. Tips distributed from a tronc system (tips are pooled and the business decides on the allocation) will have to be paid no later than the end of the month following the month in which they were received from the customer.

Any employer breaching these new rules can be pursued in an Employment Tribunal claim leading to compensation for employees and potential fines for employers.

These latest proposals are part of a package of measures to provide further protections of workers’ rights. New rules are expected to come into force one year after legislation has been passed to give employers time to adjust their policies and practices.

With the Bill currently at the second reading stage in Parliament, exact timescales are hard to predict but the direction of travel is clear and savvy employers would be well advised to start reviewing their policies and procedures now so they are not caught out later.

If you would like employment advice on this issue, get in touch with our employment team.