New tipping law begins: will your tip now go to staff?

Will your waiter actually receive their staff tip, or will your money just go to a giant, faceless restaurant group? It’s a question that has flummoxed Brits for years, resulting in satisfied customers being left unsure about how to show their appreciation for top quality service.

From tomorrow, the Employment (Allocation of Tips) Act 2023 will come into force which will attempt to make things clearer for those dining out. But, while the changes will chiefly disrupt restaurants, they will also affect taxis, cafes, hairdressers, and delivery drivers.

The new regulations state that all tips and service charges must be given to the staff who served the tipper (or made the food) rather than the employer being in control of allocation.

How will this impact the customer? Here’s everything you need to know about the new law.

What are the new tipping laws?

At the end of a meal or a round of drinks, it’s now customary for hospitality firms to add on 10% to the bill. Officially called a service charge, but colloquially called the tip, this is now acceptable practice to most patrons (even those who grumble about UK tipping culture).

The new legislation, launching this Tuesday, prevents companies from holding onto service charges. Instead, they need to be fairly distributed among all workers, including agency staff.

Of course, this is a practice that many customers might have thought was already in place. It’s exactly that lack of clarity this legislation is set to address.

Under the law change, companies will be required to publish clear rules on how tips will be allocated for front of house and back of house roles, and keep records of tips for three years.

The money will also need to be doled out to workers quickly, within one calendar month. Government estimates have said that around two million hospitality workers are expected to receive a total of £200m as a result of law change.

Why have the new rules been introduced?

The hospitality sector is between a rock and a hard place. It is short-staffed, so employers need to offer attractive wages. But customer footfall is also dropping, meaning fewer profits to draw pay increases from – despite the minimum wage rising every year.

In the background of this growing pay crisis, service charges had started to become handy cover for businesses to cover rising operational costs (cash tips, paid voluntarily by customers, have generally always been passed onto the server).

Some firms had even begun using the fee money to make up for lost sales, resulting in controversies for big-name brands such as Miller and Carter.

In fact, just one third of hospitality firms reported giving 100% of service charge money to their workforce, which has resulted in a very low pay rate for workers.

The law change aims to tip the scale back in favour of employees, and make the rules clearer on what constitutes fair tipping and tip pooling policies.

“On the one hand, [the Allocation of Tips Act] puts additional pressure on businesses in an industry that is already facing high costs and low bookings,” says Rufus Hood, Country Manager UK at Coople. “However, [the Act] will be very welcome news for staff.”

How have businesses responded?

Lots of hospitality companies already have service charge systems in place, such as a tronc scheme, that are designed to protect staff tips and boost restaurant wages.

However, not being able to keep service charge money means that many businesses will lose a key part of their revenue. As a result, the push-pull nature of employer-employee relationships means that this pay boost for hospitality workers will likely impact the customer.

Firms could be forced to shrink portion sizes, limit service options, or cut back on amenities. Some may lower headcount, leading to longer wait times or a decline in service quality.

Many businesses have already begun to make changes to absorb the law change. Research by three rocks® found that, on average, firms would raise their prices by 10%, pushing up the median cost of a pint to £5.22 in order to maintain profitability.

Others have begun trialling additional charges or scrapping service charges altogether in order to mitigate the impact; a move that has caused some backlash among consumers.

Tipping point

There are ways around the new legislation. But in the majority of hospitality businesses, it should result in a pay boost for workers and a standardised approach to the thorny subject of tipping (how much, when, and to whom?) that has stirred many debates at the dinner table.

Indeed, Tuesday’s law change will force customers to cement their opinions on tipping, as Brits become aware of how their spending power impacts employees’ earnings.

The three rocks® survey found 73% of drinkers said they would be happy to pay extra to tip staff when buying drinks. Hospitality business owners will be hoping that this goodwill continues if they are forced to raise prices to accommodate the new act.