The New Tips Law

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, Employers were able to choose whether to keep tips made on cards, or whether to pass the earnings on to employees.

The new regulation will give staff the right to see their employer’s tipping policy and a record of the tips provided by customers.

Lawyers have urged Employers 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, 

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.

 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.

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 

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

As of 2021, around 80 percent 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.