New tips legislation gives pay boost to millions in the hospitality sector

Proposed new legislation to allow hospitality workers to keep their tips has been broadly welcomed by a leading trade body.

The Government has announced this month that it is backing the Employment (Allocation of Tips) Bill, which bans employers from withholding tips from their staff.

Trade body UK Hospitality said it was a good starting point, but there were issues that needed to be addressed before it becomes law.

These included the length of time for businesses to adapt and deal with red tape and having to disclose sensitive business information.

The Bill also ensures tips are divided among all staff, including kitchen workers.

That has sparked fears from some front of house staff who fear earnings could be cut if they had to share tips with kitchen staff, including in some cases, highly paid chefs.

Code of Practice to enforce law

When the Bill becomes law, it will benefit more than two million UK workers across the hospitality, leisure and services sectors – who tend to rely on tips the most and are among the hardest hit by the cost of living crisis.

A statutory Code of Practice will be developed to provide businesses and staff with advice on how tips should be distributed.

On top of this, workers will receive a new right to request more information relating to an employer’s tipping record, enabling them to bring forward a credible claim to an employment tribunal.

What taxation applies to tips?

You have to pay Income Tax on any tips you get, and may have to pay National Insurance. Who reports the tax and whether you pay National Insurance depends on:

  • How the customer paid the tip
  • How tips are managed at your workplace

What should employers do?

The employers will have to decide how best to share tips, so speak to your employees and get their opinion. You will then need to create a written policy that outlines how you plan to manage and divide their tips. You will also need to start keeping records of this.

How does it work for employees?

Your employees now have the right to request your tip sharing records, and any information on the management of this money. This is to allow them to bring evidence to an Employment Tribunal, if the Code of Practice has been breached.

Using a troncmaster

A tronc is a separate organised pay arrangement used to distribute tips. The person who runs the tronc, a troncmaster, must run a payroll and report the information to the tax authority

HMRC must be informed who the troncmaster is so that they can set up a PAYE scheme for the tronc. Your accountant can guide you on this.

For help and advice on related hospitality industry matters, please contact our team today.