October will see new legislation come into force, requiring employers to pass on 100 per cent of gratuities to staff, without deductions.

Employment law expert John Grant, from leading Scottish law firm Wright, Johnston & Mackenzie LLP (WJM), has produced a handy guide to help both employers and employees cut through the jargon and for the former to stay on the right side of the law.

The Employment (Allocation of Tips) Act 2023, commonly known as the Tipping Act, effective UK-wide from October 1, will protect more than two million workers, largely in the hospitality industry, by ensuring they receive a fair share of tips collected by businesses.

The new law will also amend the definition of wages, as detailed in the Employment Rights Act, to include qualifying tips, gratuities and service charges.

Employers must have a written policy in place surrounding tips and are also now required to keep records of how tips have been managed and distributed. However, they still maintain a level of control as to how their business gathers tips and may set up agreements with staff.

John has laid out his top tips for sticking to the new guidance below, particularly for those in the hospitality trade, who could face severe financial consequences if new regulations are not adhered to.

Above all get your house in order

The importance of having a proper policy, which meets the requirements of the Code of Practice on fair and transparent distribution of tips, that addresses how your company will deal with gratuities and keeping a record of how tips are distributed is paramount above all.

Having a clear policy and keeping up to date files on how tips have been handled could keep you and your company out of a sticky legal situation.

You must also remember your responsibilities to employees, namely their rights to receiving fair tips and to access and see records upon request.

These new regulations make it easier for claims to be brought to employment tribunals if there is non-compliance, so it’s important to have your house in order. Workers will also be able to use the Code of Practice in a claim to an Employment Tribunal. Such a claim could include a claim for unlawful deduction from wages.

Beware of costs

While this new law is designed to benefit workers, and to a certain extent HMRC in terms of its tax take, employers must consider the potential costs involved.

To avoid getting stung, employers should take the necessary steps before the new laws come into effect to ensure that all the infrastructure is in place to administer the processes that will be required by these new regulations.

Same rules apply for tronc schemes

It’s important to bear in mind that it doesn’t matter whether the employer choses to set up a tronc scheme to administer the tips or not, they will still be liable for any breach.

It remains the employer’s responsibility to ensure the new law is followed and employees should see an increase in their pay due to the lack of deduction of administrative fees.

Employees will experience tax changes

For employees, with new taxable income comes changes they must be aware of when viewing documents such as payslips and HMRC resources.

Tax codes are one thing that will certainly change, while there may be impact for some in terms of thresholds for paying income tax and National Insurance. In all the Act should protect the tips of more than two million workers.

Diversity of hospitality sector means there will likely be a settling in period

Lastly, it’s important to note that, due to the diversity of the hospitality industry, there will be proper uptake of this new law at different paces.

While your large pub groups and restaurant chains will already be working on this in the background, smaller, independent businesses, like independent pubs and restaurants, may take longer to get up to speed.

This does not excuse them from following the rules, but there will be a settling in period that may see some leniency in the early days of adoption, allowing businesses time to following proper practice before there is an escalation of non-compliance procedures.

For expert employment law advice contact the WJM team at employment@wjm.co.uk