Tip Your Waiter, Not Their Employer

Tip Your Waiter, Not Their Employer – Upcoming Legislation on Discretionary Payments for Service

Key Contact: Claire Knowles

Author: Adam McGlynn

I am yet to receive a tip from someone reading one of my articles but I’m sure it is only a matter of time, right? While, for now, I’ll have to take satisfaction from LinkedIn likes, those in the hospitality, leisure, and service sectors will be far more familiar with discretionary payments for service such as tips, gratuities, cover charges, and service charges. Save for their treatment in relation to National Minimum Wage calculations though, such payments have been surprisingly unregulated… until now.

In September 2021, the Department for Business, Energy & Industrial Strategy released the Government’s response to its 2015 – 2016 consultation on the treatment of discretionary service payments. This response remains true to the Government’s 2018 announcement of intention to introduce legislation allowing workers to retain tips and other payments.

The response addresses three main policy objectives:

1. That tips, and similar payments, should be discretionary, which is made clear to consumers.
2. That workers receive a fair share of tips, and similar payments.
3. That the treatment of tips, and similar payments, should be clear and transparent to both consumers and workers.

The response sets out that the following legislative measures will be introduced in the upcoming Employment Bill, which has been planned for some time now and will be progressed when parliamentary time allows:

• Employers will be prohibited from making deductions from tips except for tax purposes.
• Employers will need a written policy explaining the distribution of tips, which must be fair.
• Tips may be distributed via a tronc but must be dealt with by the end of each month.
• Employers will need to keep a record of tips, which employees may request information on.
• The voluntary Code of Practice introduced in 2009 will be replaced by a statutory code.

Where employers fail to comply with the new requirements, workers will be entitled to pursue claims through the employment tribunal. The scope and remedy of these claims is currently unclear and it is also unclear if there will be any remedies available to consumers where a business’ external facing policy is not sufficiently clear and transparent.

Watch this space for further developments on this upcoming legislation, for support understanding new requirements, and for assistance preparing and implementing internal and external- facing tipping policies.

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If you have any further queries or require support, please feel free to contact the employment team.