In 2016, the government launched a consultation on the way in which tips and other discretionary service charges are paid to workers, with a view to taking action against unfair tipping practices and the lack of transparency for both employees and consumers on the treatment of such payments. The government’s broad policy on discretionary service payments can be broken down into three main objectives:
- it should be clear all tips are discretionary and made on a voluntary basis;
- tips should be received by workers; and
- there should be transparency to ensure both consumers and workers are clear as to how the payments are treated.
The government has now confirmed an intention to introduce a legal requirement for tips to be given directly to workers. This will be a welcome change for hospitality workers who are often on the minimum wage and rely on tips for income. Previously, some employers have kept some or all of the discretionary service charges paid. The new measures will be included in the forthcoming Employment Bill and will place an obligation on employers to:
- not make any deductions from tips received by their staff other than those required by law;
- be fair and transparent in terms of distribution of tips including, for example, having a written policy and keeping a record of tip payments;
- allow staff to request information on an employer’s tipping records; and
- take into consideration a new statutory “Code of Practice on Tipping”, which will replace the existing voluntary code introduced in October 2009.
Whilst the proposed legislation will improve the current confusing, and occasionally frustrating, practice for both workers and consumers, employers will face an administrative challenge and additional costs. In particular, they will be required to pay employees’ tips through a “tronc” system, a separate organised pay arrangement used to distribute tips. They will also be obliged to produce annual statements setting out the discretionary payments received and how they were handled. Furthermore, as these rights will be enforceable in employment tribunals, there will be added pressure on employers to ensure the new legislation is complied with correctly. The new rules are expected to come into force no earlier than one year after the Bill has been enacted, so employers should have time to prepare for the changes.