There has been a lot of adverse publicity around tips and service charges and whether these are passed to staff and are subject to administration charges. The concern around fair payment of staff, and clarity for consumers about where tips go, has led to the Government considering legislation. A consultation on the best approach to this issue closes on 27 June 2016.

The current law on tips and how they are distributed is set out our article “Tips – a fair distribution”

A voluntary code of practice was published in 2009 which urges operators to give customers and workers information on how they distribute tips so that customers can make an informed choice before leaving a tip. However a Government Call for Evidence in late 2015 made it clear that “the voluntary code of practice is not widely used or understood: and fails to ensure a consistent level of fairness and transparency around the treatment of discretionary payments for service and cover charges“.

The Government is proposing action to increase transparency for consumers and workers around discretionary service payments to ensure that for consumers they are truly discretionary and that workers receive a fair share from such payments.

Proposals for new legislation to regulate tips

The Government is considering:

  • preventing or limiting any employer deductions from discretionary service charges;
  • banning or limiting the levying of table sales charges on staff;
  • making it clearer for customers that discretionary payments are discretionary and that they are free to choose whether or not to make them;
  • preventing employers from making any deductions from discretionary payments other than those required by tax law;
  • how to incentivise the use of a well managed tronc system, particularly those that are wholly independent of the employer;
  • updating the current voluntary code to cover issues such as discretionary payments made by card;
  • making the voluntary code statutory so that it could be directly enforceable in legal proceedings.

Issues to consider

If you are planning a response to the consultation document you may wish to consider:

Prohibition on deductions from discretionary payments – whether this would affect the way you currently operate.  Some outlets make deductions for administrative costs, but as a result are able to pay higher wages.  Would wages have to reduce if administration charges could no longer be deducted?  It may be that one model does not fit all outlets.  A small outlet that knows its staff well might want to pay good staff a higher hourly rate as this is good for staff morale and may need to use the administration charge to facilitate this.

Purchasing a business – if you are contemplating acquiring a business it is important to know beforehand exactly how staff are remunerated.  If a tronc system is operated it is imperative to have full details of this and to be able to see how this sits alongside other staff benefits.  Any new legislation could have an impact on established tronc arrangements and the bottom line.

Tronc systems – the Government is keen to have views on how the current tronc arrangements (E24 guidance) can be amended to encourage systems which are independent of the employer and also how payments made by card can be distributed via the tronc.

A tronc to suit your business model – every business will operate differently, so in a food led outlet it would be reasonable to share tips with the chefs, whereas in a wet led outlet employing mainly casual chefs, it may not be.  It is unclear whether the Government’s proposals will enable businesses to be flexible over who participates in their tronc and is something that could be raised in any response to the consultation document.

The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.