Hospitality service charge rules: tips for getting it right

In October 2024, new laws surrounding hospitality service charge rules and the updated Tipping Code Of Practice will come into play.

Practices around tipping staff in restaurants, bars and other such venues have long been a source of confusion and consternation for customers, business owners and their staff alike.

While customers may want to reward their servers for looking after them, it’s often been unclear whether any or all of a venue’s service charge will be passed on to them, or whether paying a tip by cash is the most likely way to ensure it ends up in the appropriate pocket.

But with the Employment (Allocation of Tips) Act 2023 having received Royal Assent earlier this year, with further checks passed through the House of Lords, it seems any confusion is set to end.

The Act was designed to make the distribution of tips, gratuity, and service charges fairer and more transparent across the hospitality industry.

The money involved here isn’t just small change either, with the Government estimating that the new rules will allow more than two million workers to keep a total of £200 million a year in tips.

For relevant businesses, some preparation will be required for the forthcoming changes to ensure they’re prepared for their responsibilities under the proposed new tipping code of practice. We’re already working with several hospitality clients to ensure that they have everything in order in plenty of time.

The new hospitality service charge rules will make it unlawful for businesses to hold back or misuse service charges from their employees and will ensure that staff will fairly receive all the tips they have earned.

Though many businesses will already be operating in the spirit of the new legislation, this will ensure clarity across the industry going forward.

The Code of Practice, which follows alongside the legislation, covers several fundamental principles which outline how business owners will need to manage tips from 1 July:

• The allocation of tips made must be clear, objective, fair and reasonable to all workers.
• For the purposes of the allocations, a business can distinguish workers based on a “clear and objective set of factors” and are not obligated to “allocate the same proportion of tips to all workers”. This may be determined by seniority, job roles, or duration of service.
• A written policy on how tips are dealt with must be made available to all workers, including agency workers.
• Workers will have the right to request information about the number of tips generated and their own award value, with each worker being able to submit one such request in one three-month period.  However, they are unable to request information on the tip amounts their fellow workers are allocated.
• The Code confirms the Tipping Act requirement that all relevant tips must be passed on at the latest by the end of the following month in which those tips are received. For example, relevant tips received on 23rd June must be distributed by 31st July.

There is a degree of flexibility to the code, allowing businesses to tailor their own policies to the suit the circumstances in which they operate.

With these changes fast approaching, hospitality businesses should consider making the policy available as soon as possible, in the best way they can, and should be taking informed advice if they have any doubts about what they should be doing or how the new rules will impact on their individual operations.

For further information on the implications for your business of the new Code of Practice on tipping, or on any other aspects of managing hospitality sector finances, please contact Paul Gainford on 0191 256 9500 or visit www.r-m-t.co.uk.