Millions To Take Home More Cash As New Law On Tipping Passes - Withholding Tips From Staff Now Unlawful

3rd May 2023

Withholding tips from staff becomes unlawful as the Tipping Bill achieves Royal Assent, with more than 2 million workers to have their tips protected.

Withholding tips from staff becomes unlawful as Tipping Bill achieves Royal Assent.

More than 2 million workers will have their tips protected and be able to view an employer's tipping record.

An estimated £200 million a year will go back into the pockets of hard-working staff by retaining tips that would have otherwise been deducted.

Millions of UK workers will take home an estimated £200 million more of their hard-earned cash, as employers are banned from withholding tips under the Employment (Allocation of Tips) Act 2023, which received Royal Assent on Tuesday 2 May 2023.

Many hospitality workers rely on tips to top up their pay and are often left powerless if businesses don't pass on service charges from customers to their staff.

This Bill makes it unlawful for businesses to hold back service charges from their employees, ensuring staff receive the tips they have earned. The measures are expected to come into force in 2024, following a consultation and secondary legislation.

This overhaul of tipping practices is set to benefit more than 2 million UK workers across the hospitality, leisure and services sectors helping to ease cost of living pressures and give them peace of mind that they will keep their hard-earned money.

Business and Trade Minister Kevin Hollinrake said, "As people face rising living costs, it is not right for employers to withhold tips from their hard-working employees.

Whether you are pulling pints or delivering a pizza, this new law will ensure that staff receive a fair day's pay for a fair day’s work - and it means customers can be confident their money is going to those who deserve it.

I want to thank Dean Russell MP, Virginia Crosbie MP and all the campaigners who have helped make the Tipping Bill a reality and improved the lives of workers across the UK.

Dean Russell, Conservative MP for Watford, said, "I am very pleased that my Tips Bill has received Royal Assent. Hard working people working in hospitality in Watford and across the country will be able to retain their tips, knowing that they will now have a fair deal.

I have always had reservations that some employers kept tips which were earnt by their staff. This new law will stop this immediately and will ensure that the tips are given to the individual staff member, or team.

I would like to pass on my sincere thanks to every business and individual who has been in touch to share their support for my Bill.

Virginia Crosbie, Conservative MP for Ynys Môn, said, "I am pleased this bill is now law. Driving it forward was all about fairness for workers and for those who give tips for good service. It was never right that a minority of companies could pocket tips when the public wanted them to go to the person who served them or made their food.

The law will now boost wages for what are often lower paid jobs and not boost company profits at the expense of hard-working staff. But it is also about valuing the people who do important jobs in our economy, especially in tourist areas like Anglesey, and I am proud to have played my part.

Through the Act, a new 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.

UK Hospitality Chief Executive, Kate Nicholls, said, "Fantastic hospitality experiences don’t happen without a huge effort from our teams, both front and back of house, and tips are a generous way of customers showing their gratitude, while providing a welcome boost to employees’ earnings. Tips are just one part of what makes working in hospitality a great job and career.

We’re pleased to support this new piece of legislation as it comes into law today and look forward to working with Government and other stakeholders on a code of practice that ensures a fair distribution of gratuities amongst all who contribute to providing great hospitality.

Today’s Royal Assent follows a range of government action to support people with the cost of living and help those on lower incomes keep more of what they earn, whilst delivering on the government’s priority to halve inflation. Most notably, last month the National Living Wage increased by 9.7 percent, keeping the government on track to achieve its manifesto commitment for the National Living Wage to equal two-thirds of median earnings by 2024, provided economic conditions allow.

Further recent government action to support households with the cost of living includes extending the Energy Price Guarantee at its current level for another two months, which keeps energy bills at £2,500 for a typical household until the end of June. We have also extended the freeze on fuel duty, saving the average car driver in the UK £100 over the next year.

The Government strongly believes that tips, gratuities and service charges should go to workers, rather than employers. Tips are intended to reward staff for hard work and good service, and they should be distributed fairly and transparently. The Government has made this clear since announcing its intention to legislate on this and confirming its support of this Private Members’ Bill.

The measures in the Employment (Allocation of Tips) Act 2023 will come into force via secondary legislation. We expect the measures to come into force around a year after Royal Assent. We will confirm the date of commencement later this year.

The measures in the Act will be supported by a statutory Code of Practice. This Code is being developed and will be subject to formal consultation later this year.

Anyone who has concerns about current or recent employer can contact the Acas helpline on 0300 123 1100.

What does the Bill mean for employers in the hospitality sector?

The Bill, if passed, would create a legal obligation on employers to allocate 100% of tips, gratuities, and service charges to their employees, without making any deductions. This means a decrease in profit for employers in the hospitality sector - but is a win for their employees who earn these tips but do not always reap the rewards of keeping them.

The Bill also requires that these tips must be distributed at the premises in which they were generated. This therefore bans employers from withholding tips, meaning customers will know that all tips will go directly to the hardworking members of staff who have earned them.

How will employers have to adapt to ensure compliance?

Employers affected by the proposed Bill would have to ensure that the distribution of tips, gratuities and service charges between their employees is fair. The Bill proposes that this ‘fairness’ be judged in line with a new Code of Practice which will be introduced to supplement the proposed legislation.

The Bill also requires an element of transparency from employers in how they distribute their tips. Therefore, employers must create their own written policy for the allocation of tips between their workers – so long as it is in accordance with the Code. This affords an element of flexibility to employers to ensure the Bill can be incorporated into their business model, while also applying it consistently to all their employees, including agency workers who are set to benefit in the same way as employees under this Bill.

The Bill also requires employers to keep a written record of how tips have been dealt with for three years from the date received. This will undoubtably aid in transparency and ensure compliance from the employer, as well as protect the employer from any potential claims against them by the employee with regards to distribution of tips.

Does the Bill also apply to agency workers?

Many companies are utilising the use of agency workers more so than ever before and historically, agency workers would miss out on receiving their fair share of tips. However, under this Bill agency workers would have a statutory right to receive a fair share of tips on the same basis as directly employed staff.

Under the Bill, agency workers cannot be excluded or disadvantaged simply because they are provided through an agency. Businesses must pass on the agency worker’s share of tips to the supplying agency, who are then required to pay those amounts to their workers within a month of receipt from the operator.

What are the implications on National Insurance and Income Tax?

The draft new legislation requires 100% of the face value paid by customers to be distributed to workers with the exception of any statutory tax or National Insurance deductions required as a part of the normal payroll process.