The introduction of the Employment (Allocation of Tips) Act 2023, effective from 1 October 2024, brings significant changes to how tips are managed within the UK hospitality sector. This legislation ensures that employees receive 100% of the tips and service charges they earn.
Understanding the Changes
Under the new law, all tips received by hospitality businesses must now be passed entirely to the staff, promoting fairness and transparency in tipping practices.
The Tipping Act, by amending the Employment Rights Act 1996, establishes several key requirements for employers:
- Employers must distribute 100% of tips to their employees without unauthorised deductions.
- All tips must be allocated in a fair and transparent manner and paid by the end of the following month after they are received.
- Employers are required to keep a detailed and accessible written policy on the management of tips.
- A record of all tips distributed must be maintained for three years, with workers having the right to access their individual records.
- Importantly, tips cannot be included in the calculation of wages for the National Minimum Wage and National Living Wage, ensuring that wage payments meet the minimum requirements independently of any tips collected.
Guidance Provided by the Code of Practice
Although not legally binding, the code of practice on fair and transparent distribution of tips (Code of Practice) is instrumental in guiding employers on the implementation of the Tipping Act. Key aspects include:
- Identification of ‘qualifying tips’ which are subject to the Act.
- Criteria for fair allocation and distribution of tips among workers.
- Recommendations for maintaining transparency with written policies and records.
- Advice on establishing equitable tronc systems managed by a troncmaster or an external operator.
How Beavis Morgan Can Assist
At Beavis Morgan, we recognise the unique challenges and opportunities within the hospitality industry. We offer a hands-on approach with services tailored to the needs of various businesses in the sector, from restaurants and bars to hotels and food delivery services. Our comprehensive services include:
- Tax Efficiency and Planning: We guide on optimising tax liabilities and maximising potential savings under the new tipping framework.
- Corporate Finance Advice: Assistance with financial management and restructuring to adapt to the changing economic landscape of the hospitality industry.
- Profit Maintenance and Cash Generation: Strategies to sustain profitability and improve cash flows amidst new operational challenges.
- Payroll Services: Through our group company, BM Connect, we provide seamless payroll solutions that ensure accurate and timely distribution of tips in compliance with the new Tipping Act.
The new Tipping Act represents a significant shift towards greater transparency and fairness in the hospitality sector. Beavis Morgan is committed to guiding and supporting businesses through this transition. For expert advice and bespoke solutions, contact your usual Beavis Morgan partner, or Matthew Burge.
Our team is ready to provide the expertise and support needed to navigate these changes successfully.