Major changes to the law on tips, gratuities and service charges have come a step closer. The Employment (Allocation of Tips) Bill has now passed the Committee Stage of its journey through parliament and is expected to become law at some point. As we will hear shortly, the hospitality sector is gearing up for the change.
This is the new law designed to create a legal obligation on employers to allocate all tips, gratuities and service charges to workers without any deductions. The Bill also requires employers to ensure that the distribution of qualifying tips between workers is fair.
Assuming the Bill does come into force, employers will be under a duty to allocate qualifying tips, gratuities, and service charges to their staff by no later than the end of the month, following the month in which the payment was made by the customer. Other points to be aware of are:
1. Employees will be able to see their employer’s tipping record and have the right to bring an employment tribunal in the event of a dispute
2. Tips must be allocated fairly between workers at the place of business
3. Employers will be prohibited from making deductions from tips (including credit card payment processing fees)
4. The Bill doesn’t cover cases where customers directly pay employees in cash
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 the Bill. I started by asking about that last point - the carve out - where customers directly pay employees in cash:
Francis Keepfer: “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 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. 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: “Assuming this new law does reach the statute books, what’s your message to employers? I guess you want them to be ready for it, understand what’s coming?”
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 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. If you want to know more about Troncs then a good place to look is the Explanatory Notes to the Bill which sets all of that out. We have put a link to that in the transcript of this programme.