Updates on tipping law changes for the UK hospitality industry

A significant change in tipping practices came into effect on 1 October 2024 with the Employment (Allocation of Tips) Act 2023. This new legislation requires all service-based businesses, including restaurants, cafes, pubs, and hotels, to ensure that 100% of tips and service charges go directly to the employees who earned them.

Previously, employers had no legal requirements to pass on tips or service charges to staff. Many businesses retained a portion of these payments for administrative costs or additional profits, leaving employees needing clarification about how much of their hard-earned tips they would receive.

Introduced through a Private Members’ Bill, the Act establishes a new standard of fairness and transparency within the UK hospitality industry, ensuring workers are fully rewarded for their service.

Tronc schemes and tipping

A Tronc scheme is commonly used to pool and distribute tips among staff, ensuring they are fairly divided, particularly for employees who may not directly receive tips, such as back-of-house employees. These schemes also help businesses comply with National Insurance requirements by formalising the process of tip distribution, ensuring that all payments are correctly recorded and taxed in line with HMRC regulations.

Under the new law, Tronc schemes must adhere to the following:

• 100% of tips must be distributed to staff. Employers can no longer deduct any portion for administrative costs.
• Clear and transparent guidelines for pooling and sharing tips among employees.
• Employers must keep detailed records of how tips are distributed through the Tronc system and be able to demonstrate that the system is being used fairly.
• Tips must be distributed within a reasonable timeframe, typically by the end of the month following the receipt of the tip.

How can employers ensure they remain compliant?

To meet the requirements of the new tipping laws, employers should take the following steps:

• Review existing tipping policies and ensure they align with the new regulations.
• Implement a clear and fair system for distributing tips among staff.
• Consult employees to help develop a policy that is both fair and transparent.
• Document and communicate the tipping policy to all staff, ensuring their understanding and participation.

How we can help you

If you have any questions or would like to learn more about what the new laws mean for you, please get in touch with our Tax Manager, Mark Johnson, for further information.

Email: [email protected]

Phone: 01926 422292