Are your Tipping Policies in Tip-Top Shape?

23 / 11 / 2022

The Employment (Allocation of Tips) Bill (the “Tipping Bill”) is a private members’ bill that was backed by the (then) government at its second reading in Parliament in July 2022. The Bill recently went through the ‘committee stage’ of the House of Commons in October 2022. Whilst there are some parliamentary hoops left to jump through, the Bill is expected to become law given that it received governmental support, albeit we have had two changes in government since then.

Anticipated Changes

The Bill is set to overhaul tipping practices to ensure that all tips left for service staff are actually given to them, in full. At present, workers only have the right to retain cash tips (unless the terms of their contract of employment says otherwise). Payments made by card go directly to the employer, at which point they are free to make deductions before passing tips on to their employees. Once the Bill becomes law (and assuming there are no significant changes), this practice will come to an end. Under the Tipping Bill, all tips, gratuities and services charges must be distributed fairly among staff, without deductions. This will apply not only to employees, but also to agency staff.

In addition, to promote transparency and fairness, businesses must have a written policy which sets out how they deal with tips. Employees will have a new right to request information about their employers’ tipping record over the previous three years. Once a request is made, employers must respond within four weeks, therefore it is paramount that businesses keep records of how they have dealt with their tips to avoid breaching the new rules, once they are in force.

The Tipping Bill also sets out that a new statutory code of practice will be developed. It is anticipated that the code will set out principles of fairness and transparency and it will provide advice on how tips should be distributed. The code will have significance as it affects various aspects of the proposed new rules, especially with respect to tronc (which is addressed below). However, we don’t know exactly what the new code will look like. Once the bill itself has become law the secretary of state must consult Acas before drafting the new code and then amend the draft following consultation.

Effect on the hospitality industry

These changes will be well received by the estimated 2,000,000 hospitality workers in the UK, who are often paid minimum wage and are reliant on tips. A call for evidence in 2015 outlined that two-thirds of employers in the hospitality sector made deductions from staff tips, which will come to an end should the Tipping Bill become law. This practice has been facilitated by the transition towards a cashless society. Approximately 80% of tips are paid by card which, as outlined above, makes it easier for business to retain some of the tips for themselves to cover costs.

The Tipping Bill will increase transparency for all: customers know exactly where their money is going, employers must clearly identify how tips will be dealt with and workers can check how the money has been distributed. If a worker finds that the rules have been broken, they will be able bring a claim in the Employment Tribunal which may lead to their employer having to pay up to £5,000 in compensation, and face the negative publicity and reputational damage that comes with it.

On the other side of the coin, hospitality-based business may not be pleased to see that they are subject to these additional burdens, especially at a time where inflation and energy costs have skyrocketed on the back of two years of lockdowns and restrictions. Therefore it is sensible to prepare for these changes in advance. One could argue that the Tipping Bill will therefore lead to stagnant wages as employers look to recoup these additional costs.

TRONC

Many business owners currently distribute tips via a tronc system. Some employers are concerned that the proposed legislation effectively renders the tronc system futile and will have to commit significant time and resources to effectively fulfil the role that the tronc provider has already been doing for them. Well… fear not! The draft legislation, in its current form, makes clear that a tronc system may be compliant with the new rules, so long as tips are distributed by the end of the month after the customer has paid. This will effectively end the practice of the tronc master holding back a proportion of the tips to distribute at less busy times of the year. 

There is a caveat. Using a tronc operator will only comply with the Tipping Bill where it is “fair for the employer to make those arrangements”. What is “fair” will be determined by the above-mentioned code of practice, which of course we do not know the contents of yet.

Whilst some businesses appoint an internal ‘troncmaster’, some use an entirely independent third party. Independent tronc providers tend to distribute the money based on principles of fairness and for the benefit of the staff. Internal troncmasters tend to be a service staff member, such as head waiter, and therefore distribute the money in a similar fashion. It is likely that the new code will consider these two practices are “fair” and therefore compliant with the potential new law. However, where an independent troncmaster charges a fee for the service, the employer will not be able to instruct them to take their fee from the tips received from customers. Thereby ensuring that the cost of such a service is borne by the employer, not the employee.

Whilst this is somewhat speculative until we see the new code of practice, after the Tipping Bill becomes law, if an independent tronc operates without employer interference or deduction then it is essentially in-line with the spirit of the draft Bill and is likely to be compliant. Therefore, if you use a tronc system, don’t panic. Nonetheless, it is worth reviewing the draft code carefully once it has been published.