As of late, there has been a growing awareness and concern regarding the distribution of tips and service charges in various industries, especially within the hospitality sector. To address these concerns and ensure fair and transparent practices, new legislation and an updated Code of Practice have been introduced. As a company who feels that giving and receiving tips should be easy and straightforward for everyone, we want to break down what this ground-breaking news means for our industry.
The issue of how tips and service charges are distributed to employees has long been a matter of contention. Many workers, particularly those in the service industry, often rely on these earnings as a significant part of their income. However, there have been instances where employers have not been transparent about how these funds are managed, leading to a lack of clarity and trust between employers and employees. To learn more about the Code of Practice, see our blog here.
The New Legislation
In response to these concerns, the UK government has introduced new legislation aimed at ensuring fair and transparent practices in the distribution of tips and service charges. The legislation, which is now due to come into play on the 1st of July, (rather than the original date of the 1st of April), applies to all employers who collect tips and service charges, including those in the hospitality, restaurant, and service sectors.
Key highlights of the legislation include:
Transparency: Employers are now required to clearly inform both customers and staff about how tips and service charges are distributed. It is law that an employer must pass on 100% to the team members, no later than the month in which they have been received. And the employees must be fully aware of the proposed distribution method for TRONC. It is not law but recommended that businesses share these practices with their customers.
Updated Code of Practice: Alongside the legislation, an updated Code of Practice on Fair and Transparent Distribution of Tips has been published. This code provides detailed guidance for employers on how to comply with the new regulations. There’s a separate blog on that in our blog page where we go into more detail on our take on the new code of practice.
Protection of Tips: Employers are prohibited from making deductions from tips, except for those required by law (e.g., taxes). Tips should go directly to the staff who provided the service.
Key Aspects of the Updated Code of Practice:
The Code of Practice emphasises several crucial points to ensure fair and transparent distribution of tips:
Clear Communication: Employers are encouraged to communicate openly with both customers and staff regarding their tipping policy, including any deductions or handling fees.
Fair Allocation: Tips should be fairly distributed among staff who directly contribute to the customer experience. This includes front-of-house and back-of-house employees.
Review and Transparency: Employers are advised to conduct regular reviews of their tipping policy to ensure it remains fair and up-to-date. Transparency in the review process is essential.
Protection of Staff Rights: Employers should respect the rights of staff to decide whether they want to participate in any tipping arrangement.
Implications and Benefits
The introduction of this legislation and the updated Code of Practice are significant steps toward ensuring that employees receive their fair share of tips and service charges. It not only promotes transparency but also enhances trust between employers and their staff.
For customers, this means that when they leave a tip, they can be more confident that it will go directly to the hardworking individuals who provided them with excellent service.
Points To Take Away
So, as we can see, the new legislation and the updated Code of Practice on Fair and Transparent Distribution of Tips represent a positive shift towards fairer practices in the distribution of tips and service charges. It is a significant milestone in protecting the rights of employees in the service industry and ensuring that their hard work is appropriately rewarded. Both employers and customers are encouraged to familiarise themselves with these regulations to contribute to a more transparent and equitable tipping system.