New tips law welcomed but it could cause a headache for hospitality bosses

A new tipping law, which has made it illegal for companies to withhold tips from employees, has been welcomed by workers and industry bodies but could lead to a headache for employers.

Until today, firms were able to choose whether to keep tips made on card, or whether to pass the earnings on to employees. 

The new regulation will give staff the right to see their employer’s tipping policy, as well as to see a record of the tips given by customers. 

Lawyers have urged businesses to be careful about following the policy, and said that the regulation could lead to significant costs related to compensation. The legalisation enables workers to bring claims in an employment tribunal of up to £5,000 if they believe they are not receiving the tips they are entitled to.

This could result in “significant sums” being paid to all affected workers at a pub or restaurant for example, Tessa Rodgerson, an employment lawyer at law firm Knights said.

The law, which will put an end to “controversial practices” like deducting ‘administrative fees’ or using tips to supplement managerial salaries, will lead to significant changes in the industry, Rodgerson said.

Michael Powner, employment partner at Charles Russell Speechlys, said “the practical application of the [law] will be the true test of its efficacy… As the hospitality industry adapts to these changes, the full impact of the act remains to be seen.”

Powner added that employers will need to be careful to “ensure that what is agreed is  ‘fair’ and that there is rational reasoning in place, whilst avoiding any potentially discriminatory rules [like] whether payments of tips should be shared with those on maternity leave or sickness absence and if so, for how long.”

Eilidh Wood, associate at UK law firm Burges Salmon, said that the act also “widens the scope for potential claims for unlawful deduction of wages claims, as it incorporates tips in the definition of wages.“

“The onus is on businesses to ensure tips are allocated fairly between workers taking into account the principles of fairness set out in the accompanying statutory Code of Practice… Businesses are required to and should be prepared to respond to [workers] requests [on tipping],” Lydia Christie, Legal Director and Head of Retail, Hospitality, and Leisure at Howard Kennedy said.

Some commentators have also said that it will lead to an increased burden of costs for businesses already struggling with high tax and increases in the minimum wage.

The law has been welcomed by industry bodies and staff

As of 2021, around 80 per cent of tips were made via card, although this number is likely to have increased since then.

The government has estimated that an extra £200m may be taken home by the three million staff set to benefit from the law.

The implementation of the act has been welcomed by many unions across the UK, including Unite, which has launched its Fair Pay and Fair tips campaign as part of which it plans to name and shame rogue employers who try to ignore or distort the new legislation.

Kate Nicholls, chief executive of UKHospitality, said: “The people working in hospitality are the lifeblood of our sector and these changes rightly ensure tips hard-earned through excellent service will end up entirely in their pockets.

“We completely support the changes coming into effect today, which will formalise what is already commonplace in the sector as businesses have been preparing for this legislation for a number of years.”