Get your tips in order – new rules surrounding tips and gratuity payments for the hospitality sector

In a world where cash payments are a growing rarity, practices around leaving a tip in recognition of good service in the hospitality sector are also changing. Customers are more frequently adding a gratuity at the point of payment when the card machine is presented to them. This is just one of the reasons why the UK government has deemed it necessary to review the way in which employers in the hospitality sector distribute tips, gratuity payments and service charges amongst their workers.

At the end of September 2021, the government confirmed its plans to introduce a package of measures to ensure that over two million workers in the hospitality sector are able to retain all of the tips, gratuity payments and service charges paid to them ; to enable these workers to receive “a fair day’s pay for a fair day’s work”.

The government has recently made several steps to protect and enhance workers’ rights and it seems that the onus for complying with this latest package lies predominantly with the employer. Employers will be required to:

• have a policy in place stating how tips will be handled and distributed fairly, with no deductions (including deductions from card providers) other than tax and employee national insurance contributions; and
• implement transparent and accurate record systems on how tips have historically been distributed to workers. These records must be provided to a worker within four weeks of their request to access them.

Failure to successfully adhere to the new statutory provisions will see aggrieved workers able to exercise their right to bring a claim in the Employment Tribunal for repayment of wrongfully deducted tips and gratuity payments. If a claim succeeds, the Employment Tribunal will also be able to issue a fine to the employer by way of penalty.

Commentary from business owners and employers in response to the announcement of the package is that, although willing to comply, challenges could arise when streamlining the handling of tips in a lawful way and is likely to require consultation with payroll providers and a revamp of commonplace practices of automated gratuity and service charges being applied at the point of card payment.

In the absence of a confirmed date for the measures to be implemented, now is the opportune time for employers in the hospitality industry to consider their current practices. This will reduce the risk of any costly penalties and avoid a last-minute scramble to become compliant when the statutory provisions come into force.

Joe is Counsel and Nina is a Legal Executive in our Employment team.

Disclaimer

This note reflects our opinion and views as of 22 October 2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.

Learn more about our Hotels and Leisure team

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