New UK tipping law to return £200m to hospitality workers each year

After years of campaigning by trade unions and hospitality workers, a new tipping law has been passed that will ensure service charges go directly to the employees who receive them. 

The Employment (Allocation of Tips) Act 2023, which received Royal Assent last week, will come into effect in 2024 and is expected to put £200 million back into the pockets of workers each year.

The new law aims to address the long-standing issue of employers deducting service charges from tips and gratuities, leaving workers with less than customers may believe they are receiving. Under the new legislation, businesses will be prohibited from withholding any part of the tips, gratuities, or service charges paid by customers, and must ensure that the full amount goes directly to the workers who provided the service.

How the new tipping law will work

The new tipping law aims to end the practice of employers withholding tips and service charges from their staff. 

Under the new law, all tips and service charges will belong to the employees, and businesses will not be allowed to use them for any other purpose. The law will apply to all hospitality businesses, including restaurants, bars, and cafes, and will cover all staff members, including those on zero-hour contracts.

The passing of the act into law has been widely welcomed by trade unions, worker organisations, and advocacy groups. They believe that it will significantly boost the earnings of hospitality workers, many of whom are on low wages and rely on tips to supplement their income.

According to a survey by payment provider Square, contactless tipping rose by 33% since the start of the COVID-19 pandemic, as customers look for a way to show support for hospitality workers while reducing physical contact.

Impact on hospitality business owners

The new law should ensure that staff’s hard-earned service charges are not used by their employers to supplement their business revenue. Understandably, this may not be seen as an immediate win by some who are running restaurants, bars and cafes.

There will be some new considerations for business owners in the hospitality trade. For instance, the law requires that businesses display their tipping policies clearly, including information on whether tips are shared among staff or kept by the individual who provided the service.

Here are some essential things for hospitality business owners to keep in mind:

• Be open with your customers: It will be a legal requirement to display your tipping policies, but also consider this an opportunity to engage your customers with your brand values and how you treat your staff.
• Be open with your staff: Explain the changes for them clearly and be ready to tackle any likely questions about when the change comes into effect for them.
• Consider getting in ahead of the 2024 law change: If they don’t already, it may foster goodwill with your team to ensure they get their service charge sooner than the legal requirement date. This will avoid a sense that you’re simply doing it out of obligation.
• Be conscious of cash flow: Understandably, this is a painful time for business owners to lose a share of their income – even if a service charge might be a debatable source in the first place. Stay on top of your cash flow forecasting and be more conscious than ever of our overheads and cost of goods sold. With some tough months still to come in an uncertain economy, it’s essential to ensure you’re spending wisely and maximising your returns.
• Find savings where you can: Take a moment to compare the fees on everything from the restaurant POS system you use, to the business electricity supplier you’re contracted to. Finding a better rate or more appealing contract could help you make up for a shortfall in restaurant takings.