All businesses in the hospitality industry are about to experience a significant shift. The UK's new tipping legislation which came into effect October 2024 promises to redefine how businesses manage gratuities, and understanding its implications is crucial for your business's success.
The Department for Business and Trade has predicted that the new law will mean workers will receive a further £200m rather than their employers.
To help you navigate this change, Deputy, in collaboration with TiPJAR and The Tronc Advisor, recently organised a webinar — Hospitality Growth Hacks: Getting Ahead of the New UK Tipping Legislation, which is now available on demand.
We discussed the new UK legislation around tipping and how hospitality businesses can best adhere to it amidst rising rates, supply chain issues and the staffing crisis.
The Experts On Board
During this educational and engaging session, attendees heard from a stellar lineup of industry leaders: James Brown, Co-Founder at TiPJAR® and CEO of Prezzo, Andy Hamman, Director of The Tronc Advisor, and Jon Wilson, SVP of EMEA at Deputy.
With their wealth of experience, they demystified the new legislation and shed light on the upcoming legislation’s implications.
1. Unravelling the Legislation
Andy Hamman, who has over 30 years of experience, beginning at HMRC and later specialising in employment tax advisory for the hospitality sector, provided insights into the new legislation.
The new tipping legislation is not merely another regulatory update. It’s a significant shift directly impacting your business operations and the wider hospitality industry. Understanding the legislation, its implications and how to stay compliant ensures your business thrives in this new landscape.
He clarified that the new legislation ensures that 100% of tips go directly to staff and seeks to enforce transparency and fairness in distributing tips and service charges to employees.
The Employment (Allocation of Tips) Act ensures hard-working employees receive their fair share of tips and gratuities. Businesses need to understand the intricacies of this Act to ensure compliance and maintain employee satisfaction.
Key takeaway: Understanding the new tipping legislation is critical for ensuring your hospitality business complies with the regulations and fosters a transparent and fair environment for employees.
2. Industry Reaction to the Legislative Changes
Andy observed four categories of business responses to the impending changes:
The Prepared: Those already in compliance
The Proactive: Businesses taking steps toward compliance
The Wait-and-See: Establishments awaiting the code of practice before acting
The Unaware/Indifferent: Those likely to face challenges post-enactment.
Key takeaway: The last group might face significant challenges once legislators enact the legislation.
3. Embracing Cultural Shifts in Tipping
Jon Wilson, SVP of EMEA at Deputy, highlighted how the current economic climate allows businesses to leverage the changes to their advantage, especially since the legislation promotes transparency.
James Brown of TiPJAR offered a narrative on the evolution of tipping and cultural shifts in tipping practices, from the simplicity and straightforwardness of ‘keep the change’ to the complexities introduced by digital transactions.
James also discussed the loss of transparency and fairness in modern tipping practices, with staff often feeling disconnected from their hard-earned tips. He underscored that while not all restaurant owners mishandle tips, there’s a general scepticism among staff about the fairness of tip distribution. He believes the legislation could fix transparency issues, rekindling the direct connection between service and earnings.
Key takeaway: Hospitality needs to fix tipping practices. The lack of transparency has compromised the connection between service and wages.
4. Comparing Tipping Practices Across Countries
James provided insights into the differences between US and UK tipping practices. In the US, immediate daily tips contribute to high-quality service, directly rewarding staff performance.
In contrast, in the UK, tips are typically incorporated into monthly paychecks, weakening the direct connection between service and compensation.
James acknowledged moral concerns with the US minimum wage system but asserted that his establishments operate above the US minimum wage. He likened the immediate reward system to a bonus scheme promoting excellent service.
Key takeaway: Immediate rewards can be a powerful motivator for employees, enhancing service quality.
5. The Risks of Neglecting Tipping Practices
Andy and Jon warned that neglecting tipping practices could lead to negative media exposure on mismanagement.
In an age where staff expect high levels of transparency and fairness, and can use social media to amplify their voices, ensuring compliance and enforcing regulations are more crucial than ever.
James pointed out that historically the hospitality industry has had reputational issues, so a heightened burden of accountability is now present due to staff sharing experiences online.
Key takeaway: Businesses should prioritise fair and transparent tipping practices to avoid negative publicity and maintain a positive brand image.
6. The Role of Technology in Tipping
You can manage tips in various ways, including adding service charges or incorporating them into payroll. Technology can play a huge role in revolutionising tipping practices. James introduced TiPJAR, which integrates with Deputy to allocate tips based on hours worked, transforming tipping into a transparent, digital experience.
TiPJAR addresses issues with outdated methods like spreadsheets and a lack of information, providing a much-needed upgrade to today’s practices and promoting a more transparent tipping process.
Key takeaway: Consider implementing technology solutions like TiPJAR and Deputy to modernise and streamline tipping practices, making them more transparent and efficient.
7. The Vision of a Tipping “Utopia”
Jon and James shared their vision of a tipping “utopia,” where staff could spend their tips immediately after their shift. This aspiration aligns with TiPJAR’s goal to offer a complete cash replacement tipping service, demonstrating the potential of technology to revolutionise hospitality.
Key takeaway: A future where tips are immediately available could greatly improve employee satisfaction and motivation.
Key Changes to Tipping Practices
Here’s a breakdown of what the new legislation will mean for hospitality businesses:
Full Tip Distribution to Workers: All tips and service charges must now go entirely to the workers without any deductions for credit card processing or administrative costs. Businesses must cover these expenses separately, ensuring staff receive their full tips.
Location-Specific Tipping: Employers must keep tips with the employees who earn them at their specific location, thereby ending the practice of pooling tips across multiple venues.
Inclusion of Non-Customer Facing Staff: Workers who aren’t customer-facing but contribute to the overall customer experience, such as kitchen and maintenance staff, are now entitled to a share of the tips.
Fairness Principle: A principle of fairness will govern the distribution of tips, and a new code of practice will define what practices are fair or unfair.
Timely Distribution: Tips must be distributed within a month of receiving them, prohibiting the accumulation of funds to cover pay fluctuations throughout the year.
Agency Worker Entitlement: Agency workers are entitled to tips like regular employees. This change poses new logistical challenges for businesses.
Ban on Contract Renegotiation Based on Tips: Employers can’t use tips to renegotiate contracts or supplement wages.
Impact on Management: Management and executives will no longer be able to receive a portion of the tips, which may necessitate a review of compensation structures.
Compliance Considerations: Businesses must consider operational and financial adjustments to comply with the new rules and avoid legal pitfalls.
Getting Compliant
Andy advised businesses to engage in thorough discussions with tronc operators, representatives, committees and stakeholders to prepare for the upcoming changes.
He recommends businesses accustomed to retaining tips or using them as part of their revenue to strategise new financial management approaches.
Key Actions and Next Steps for Hospitality Managers:
Assess Current Practices: Evaluate how your business currently manages tips and identify any areas that need to change to comply with the new legislation.
Plan Financially: Re-examine your financial management strategies to ensure sustainability without the previous practice of using tips to cover operational costs or quiet periods.
Engage Stakeholders: Initiate conversations with tronc operators, key representatives and committees to discuss the changes and plan collaboratively for a smooth transition.
Educate Your Team: Ensure that all levels of staff understand the new tipping legislation and how it will affect their earnings and job roles.
Implement Systems Changes: Adjust payroll systems, accounting practices and administrative procedures as necessary to distribute tips monthly.
Review Contracts: Examine employment contracts and make any necessary amendments to comply with the legislation, particularly around the prohibition of renegotiating contracts based on tips.
Stay Informed: Keep up to date with the legislation's development, including the forthcoming code of practice, to ensure full compliance once it comes into effect.
Prepare for Transparency: Develop clear communication channels to inform customers about the usage of their tips, ensuring transparency that aligns with customer expectations.
Use Time Wisely: Act promptly, as the timeframe for implementation is tight, especially considering the additional workload during the Christmas season.
Anticipate Inevitability: Acknowledge that the legislation is imminent and maintain readiness for its enactment, regardless of potential political changes.
Webinar Q&A Highlights
Question 1: Processing Fee Compliance
Q: Would systems deducting fees from tips be compliant?
A: No, it wouldn’t be compliant. The legislation requires employees to receive 100% of their tips without deductions for processing fees. Businesses must absorb costs - Andy.
Question 2: Best Practices for Tip Handling
Q: What are the best practices for handling tips, and what should employers do?
A: Maintain transparency and ensure quick distribution; give employees access to data that shows the split of tips. Compliance and administrative capability to provide such breakdowns are crucial. - James.
Question 3: Inclusion of Non-Guest Facing Roles
Q: Should we include non-guestfacing roles like general managers in tip distribution?
A: Fairness is subjective in tip distribution. General managers could be included or excluded depending on their overall compensation packages. - Andy.
Businesses can discuss disputes with the tronc master. - James.
Moving Forward
With actionable insights and a better understanding of the new tipping legislation, hospitality managers can navigate these changes confidently.
For further information and guidance, you can access TiPJAR and the Tronc Advisors comprehensive document on the new tipping legislation, read the full draft code of practice on tipping, review best practices from TiPJAR and revisit the full webinar recording to ensure you’re fully equipped to lead your business through this industry-wide shift.
This webinar is part of Deputy's Hospitality Growth Hacks series, our commitment to providing valuable resources and insights to the hospitality industry.
