Out-Law News

Hospitality sector urged to prepare for new tipping laws

Francis Keepfer tells HRNews about the forthcoming tipping laws and the advance preparations employers should undertake

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  • Transcript

    The government has provided further information on the timeline for the implementation of the reforms to tipping practices. Paul Scully, Parliamentary Under-Secretary for the government’s BEIS department has made a statement confirming that the government will bring forward the legislation requiring employers to pass all tips to workers ‘as soon as parliamentary time allows’ and expects the new rules to commence no earlier than one year after legislation has passed. Meanwhile our message to clients is you will need to act soon to be ready for these changes – more on that shortly.

    Paul Scully’ statement was in answer to a parliamentary question from Yasmin Qureshi Shadow Minister for International Development. He says: This legislation will require employers to pass on all tips, gratuities, and service charges to workers without any deductions. Employers will be required to distribute tips in a fair and transparent manner, where employers have control or significant influence over tip distribution. We will introduce a new right for workers to make a request for information relating to an employer’s tipping record, to enable them to bring forward a credible claim to an employment tribunal.’

    This existing tipping practices have long been seen as unfair but to date nothing has been done about it. There was a consultation back in 2016, with the government’s response published in June that year, then nothing until September last year when the government issued a press release. That made it clear they did have plans to bring in new legislation which they say will help around 2 million workers, making sure all tips go to them, and providing what they said would be a financial boost to hospitality workers across the country. 

    So, let’s hear more about this and see what impact it may have on employers in the hospitality sector. Francis Keepfer advises clients in this sector and he joined me by video-link from the Manchester office to discuss it. I started by asking about the scope of that earlier consultation and what is, and is not, going to be caught by the new laws:

    Francis Keepfer: “What the government have been consulting on is tips insofar as discretionary service charges are concerned. So there is a distinction between tips and gratuities, which are typically given in cash directly to staff in restaurants or in hotels. Those tips and gratuities belong to workers themselves, they go straight to the workers pockets, and employers have absolutely no right to take those away from workers. What we're talking about here, and what the government have been consulted on, are discretionary service charges. So, you know, imagine if you go to a restaurant and you see at the bottom of the bill it says, you know, there'll be a discretionary service charge or 10% added to your bill for parties for six or more. That's what the government is consulting on because at present that money goes directly into the pocket of the employer and there's no obligation on the employer to pass any of that money on to workers. So it's that which the government is concerned with and they are really concerned about two things. Firstly, about making sure that workers get a fair share of that money, that discretionary service charge. They are also concerned about transparency, both for workers and for customers, consumers. They want to make sure, effectively, that both workers and consumers know where that money is going. So there's a whole raft of changes. So not only are the rules changing around how much of that money goes to workers, but there's also a lot of changes proposed, as I say, around transparency so that people know where that money is going.”

    Joe Glavina: “We don’t know when this legislation is going to come in, Francis. It could be some time off. So what’s your message to employers?”

    Francis Keepfer: “Absolutely yes, employers need to be thinking about this now. So the changes that are being proposed, the legislation being proposed is, effectively, that all discretionary service charges will go to workers so employers will no longer be able to get any of that money, save for tax deductions. So that's the first change that the second change, as I said, is around transparency and there's going to be various kind of new rules coming in. So there's going to be a new statutory code of practice which is going to replace the current voluntary code of practice which, to be honest, isn't really given much regard by employers. Employers are also going to be required to have a written policy on tipping. They are also going to have to keep a written record of their tipping practice in their records. They are also going to have to give their workers the right to ask questions and demand information about their tipping records. So all of those changes are going to require input from employers and, as I say, what is going to need to happen is employers are going to start thinking about that now. Now there is some time. Paul Scully mentioned in The Commons last week that once this legislation does come forth there should be around a year's leading time but, you know, a year in a busy business goes pretty quick so I think employers should really be thinking about this now. They should be really thinking about the cost and the time needed to bring about these changes and to make sure they're compliant with the new legislation as and when it comes forth.”

    Finally, a word about Tronc Systems in this context. A Tronc is a special payment arrangement that helps businesses fairly distribute staff tips, gratuities, and service charges, and is recognised by HMRC. The point is that payments can be exempt from NICs if certain conditions are met and there is a far better chance of qualifying if you make the payments via a Tronc, so that’s why they are useful. So do factor that into your preparations for the new tipping laws that Francis was talking about.

    At this point we don’t have any draft legislation or guidance to look at but, at least, we do have the government’s response to its 2016 consultation which at least explains its plans for dealing with those various categories of payment that Francis referred to. We have put a link to the paper in the transcript of this programme.


    - Link to government’s response to Government response to the consultation on tipping, gratuities, cover and service charges

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