It was announced in the Queen’s speech that the Government intends to introduce a new Employment (Allocation of Tips) Bill with the aim of ensuring that all tips are passed on to staff, that tips are distributed fairly among staff and that the system is transparent to customers and staff. It is more than 3 years since the Government’s consultation into tips and service charges and 12 months since the Government announced its intention to legislate. We still await details of how the new system will work before operators can assess the impact that the change may have on their businesses.
The current position
Currently cash tips given to a member of staff are theirs to keep although most employers encourage staff to pool cash tips. No NI is due on such tips but the employee must inform HMRC and pay the income tax due.
Tips paid by a customer on a card go to the employer and there is no obligation to pass these on to staff. Any payments made to the worker by the employer are subject to tax and NI.
Customers are not obliged to pay a service charge. If they do then there is no obligation on employers to pass this on to staff.
Employers are entitled to deduct an amount from service charges and non-cash tips to cover administration expenses – e.g. breakages and till shortages. It is this issue that the new law will seek to address.
Companies are currently encouraged to follow a voluntary code of practice and operate a fair “tronc” system where tips are pooled and distributed independently from the employer. This means there is no legal obligation to pass tips on to staff but industry bodies maintain that this system gives customers and staff confidence that tips are going to the right place.
Proposed new legislation
The new bill proposes that ALL tips must be given to staff without deductions. There is no detail available as yet. Does this mean 100% of tips, or will the employer will be able to make any deductions to cover administrative expenses, or at all?
This raises some important issues for operators, including whether when tips are paid by card they will be able to deduct the transaction fee which is often payable before passing on the tip. If not then this will represent an increased cost to operators that some are calling a new tax on the industry.
We wait for the detail of the legislation to be announced…..