Update – What is the new law on tipping for bars and restaurants?

The Employment (Allocation of Tips) Act 2023, which makes it unlawful for employers to withhold tips from employees, was due to be enacted on July 1st 2024, but the Department for Business and Trade last week revealed it will now be implemented in October, once the changes have been approved by Parliament.

Kate Nicholls, CEO of UKHospitality, said delaying the tipping law was appropriate: “The revised timeframe will now allow businesses to implement any changes required and is evidence of government acting on feedback from UKHospitality.”

A new law, as of May 2023, rules that withholding tips from staff will be unlawful. The Tipping Bill has overhauled tipping practices, meaning bar, restaurant and hospitality workers will now be able to retain their pay.

What is the Tipping Bill 2023?

The Tipping Bill legislates that hospitality operators must pay 100% of money earned through tips to staff. This means it is illegal for businesses to withdraw money earned from tips out of the pockets of hospitality workers.

The aim of the bill is to ensure the service charge, commonly billed upon every meal or beverage bought sold, goes form customers to staff, and not to the businesses.

The bill should not require change from any existing arrangement made by businesses. It affects new arrangements made after the date of the legislation. However it is noted that practices should look to observe this new law.

The bill will not affect an employee agreeing to reduce their salary on the promise of tips, but is does affect the control an employer has over formally disclosed tips, such as within a service charge. It does not affect informal tips offered by customers directly to staff members.

Tronc arrangements are very common, and as the legislation does not stipulate how fairly the tip money should be shared out, a points or performance-based system is still legal. Independent troncs will be automatically designated as fair and lawful, and its up to the Troncmasteron how tip funds are shared out.

What is a Tronc arrangement? – Tronc is a pay arrangement made by businesses to fairly share out tips earned by staff. It follows a point system, allowing each worker, from pot washer to front-of-house, earn a percentage of the tips.

National insurance on tips will apply the same way, and if tips or service charges are taken outside of a tronc arrangement and added onto the bill, they are subject to national insurance tax.

Money from tips cannot be withheld from staff longer than the following month.

Which payments will be affect by the Tipping Bill?

  • Discretionary service charges
  • Card transactions
  • Cash tips directly to the business
  • App payments

When will the rules on tipping come into place?

The tipping bill has received royal ascent, this is when the King formally agrees to make the bill a law. The measures will come into force in early 2024, with more legislation tipping and tipping records set to join it.

How will the Tipping Bill affect businesses?

2 million workers will now have their tips protected by law, and employer’s will have their tipping practices recorded. It is expected to alter the destination of £200 million per year; what would go to  businesses, club, bars, pub, restaurants, will now go to staff.   

Restaurants and hospitality businesses have been under serious cost pressures since the pandemic. The cost of living and stock, and staff shortages, have greatly affected the finances of these businesses. And unfortunately this bill, despite it’s good intentions, has been seen by many as another cost pressure.

The penalty for not paying a staff member their tips was already present, however they are now much more clearly defined and potentially greater. Businesses must keep a record of their tip distribution. Businesses who do not comply with this legislation risk a tribunal and possible claims from workers.

NDML and the NTIA welcome the government’s moves to protect nighttime workers. Yet, ultimately, the Tipping Bill, is, of course, another cost pressure on our nation’s hospitality businesses.

CEO of the NTIA, Michael Kill, said in a statement following the news about the bill: –

Amazing cultural and social experiences at night begin with an exceptional team of staff, many of our employees live and breath the experiences we represent and put a huge amount of effort into delivering amazing customer experience.

Tipping is the customers opportunity to reward people for delivering above and beyond expectation, and goes a long way to enhancing workers earnings across the sector.

We welcome news that the Government have taken the step to protect employees gratuity payments.

At NDML, we eagerly await the promised support to our nightlife industry from Government…

Nightclubs are now at more of a risk of closure than during the pandemic

This shows over 255 nightclubs were lost between December of 2019 and December 2021, a closing rate of 10.63 per month. This equates to one nightclub being lost every three days during the pandemic.

FInd out more about the NTIA’s report here.