The new law, which came into force last month, requires that staff be given 100% of tips, gratuities and service charges from customers. It came into effect on 1 October 2024. In addition, businesses must craft a specific tipping policy, and workers have a new right to request a copy of their tipping record.

The government has also recently issued non-statutory guidance that states: tips cannot be pooled across different sites or branches; employers must have regard to agency workers when distributing tips; employers are responsible for making clear which roles are covered for the allocation of tips, particularly those involved in providing direct service to customers.

Before the law came into effect, many of these workers had been excluded from their fair share of cash generated from tips, gratuities, and service charges – however, temporary staff are vital to the efficient running of many hospitality businesses, particularly during peak periods such as Christmas. So as the new legislation requires temporary workers to be considered in the allocation of tips, this should put an end to these unfair exclusionary practices. If businesses unlawfully withhold money from tips from this segment of their workforce, they can be taken to a tribunal where they may be made to pay significant compensation, so it pays to follow the rules of this new law.

The Department for Business and Trade estimates that these changes will mean around £200m will be received by workers that would otherwise have been retained by these employers. It is also estimated that more than 3m service workers in England, Scotland and Wales should benefit from the law.

Simon Bocca, founder of cloud-based payroll software solution PayCaptain, said: “Lots of workers in the hospitality sector rely on tips to supplement their pay – before this law came into effect, many were powerless to do anything where employers decided not to pass on service charges from customers. Some employers have not been fully transparent with their employees on what happens with tips – the new legislation requires full transparency, this can then be shown on their payslip alongside all other pay elements to give the employees confidence they are being paid fairly and correctly, building trust and enabling them to feel in control of their pay, which leads to better financial wellbeing.”

Many hospitality businesses choose to use tronc – a special pay arrangement that lets businesses fairly share staff tips, gratuities and service charges given by customers. 

Mason Potter, co-founder at tip administration solution GRTFL, said: “Tipping has become a challenge in a cashless era, affecting owners, staff and customers. Tronc schemes are highly favoured by new legislation, as they go hand-in-hand with what the legislation is trying to achieve – fair and objective practices and offering independence and standardisation. There is a common misconception the troncs take money from business, when they actually put more money in the pockets of and benefits team members. Other benefits include cost savings, transparency, legal compliance, efficiency, better financial management.”

GRTFL’s best practice advice for hospitality businesses include:

1. Put team members first
2. Consult employees on changes (now required by law)
3. Be clear, fair and objective in tip allocation
4. Utilise technology to modernise processes and reduce human error

Dan Hawkie, chief commercial officer (CCO) at cashless tipping platform TiPJAR, added: “A consultation process with staff is key – this should cover what the team deem to be fair, and include a fair representation of the business (from all departments/sites/job roles – as relevant). Not every single employee needs to be included in the process, and 100% agreement not needed for the outcome, as a majority vote will suffice.

“Updating employee contracts is a critical step in ensuring compliance with the new tipping legislation. Employers must clearly define the proper basic pay amount, excluding tips, in employee contracts to avoid liabilities. Failure to update contracts could result in tips being considered part of the basic wage, subjecting the full amount to National Insurance contributions. It’s also really crucial to ensure compliance with minimum and living wage laws, which prohibit salaries from being topped up with tips.”

Bocca added: “Hospitality has a very diverse workforce, and while low numeracy and maths anxiety are contributing factors to not understanding their payslips, there are other elements to consider too (such as English not being first language, and comprehension of ‘technical’ financial terms that might lead to people not engaging with or understanding their payslip). Poorly designed traditional payslips further compound the problem.” 

PayCaptain is partnering with Plain Numbers in a programme “designed to give workers the confidence to understand their payslips. Interactive payslips are graphical payslips which break down payments and deductions for employees – employees can click on ‘Help’ icons for more information on how their deductions have been calculated so they know exactly how their pay has been worked out. ‘Help’ icons provide more information on pay elements and deductions (including tips and tronc), and also explain tax, NICs, student loan and pension calculations directly on the payslip”.

Ben Perkins, director of partnerships & services at social enterprise and communication service Plain Numbers, added: “Approximately half of adults in the UK have the numeracy skills expected of a primary school child, so it is not surprising that many of us are baffled by standard payslips. The new law creates an important moment in the journey for hospitality workers, as we are most likely to be confused when changes happen.”

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