Hospitality business owners are about to witness a significant shift in operations come July 1, 2024. The Employment (Allocation of Tips) Act 2023, also known as the new tipping legislation, will be coming into effect. This law will make it illegal for establishments to withhold tips from their staff, covering both cash and card payments. Understandably, this could have a profound impact on all businesses that accept and manage tips, primarily within the hospitality sector such as restaurants, bars, and cafes, where this practice is most prominent.
Understanding the Impact
The new tipping legislation may impact your establishment’s cash flow if you rely on tips to boost your revenue. If your business model includes using a portion of tips to augment your revenue, it’s now time to recalibrate and adjust your business plan to accommodate these changes.
There will also need to be additional administrative efforts. The legislation introduces a new record-keeping requirement, where businesses must maintain a written record of tips and service charges received over a three-year period. This rule applies to businesses that rely on tips as a regular or significant part of their income. These businesses, like the ones mentioned earlier, depend on tips to increase their earnings.
There are concerns that this new legislation could nudge businesses to decline card tipping to avoid the associated card payment charges. In businesses where card tipping is banned, cash tipping becomes the only alternative. And with customers carrying less cash these days, this could lead to an overall reduction in tips.
Steps Towards Compliance
While navigating this new landscape may seem daunting, there are several steps you can take to ensure compliance with the new legislation:
1. Review Current Tipping Practices: It’s essential to review your current tipping practices to ensure they align with the new law and the Code of Practice. If your business uses a tronc system, make sure it complies with HMRC’s E24 Guidance on tips, gratuities, service charges, and troncs to qualify for national insurance contributions (NIC) exemption for all applicable tips distributed through the tronc system.
2. Prepare for Record-Keeping Requirements: Set up systems to accurately track and record tips and service charges received. This will not only ensure compliance with the law but also provide transparency for your staff.
3. Communicate Changes to Staff and Customers: Transparency is key. Be open with both your staff and customers about these changes. Engage customers with your brand values and how you treat your staff. This could be an opportunity to showcase your commitment to your employees.
4. Display Tipping Policies: It will be a legal requirement to display your tipping policies. Plan how you intend to display these practices and effectively communicate these changes to both staff and customers.
By taking these steps, you can ensure you’re prepared for the new tipping legislation and can continue to operate effectively. All while ensuring your staff receive the tips they have earned.
If you’re worried about the impact that the new tipping legislation could have on your business, get in touch with ETC finance. We specialise in hospitality finance and are well equipped to help guide you through this process. Making sure that you’re compliant and can continue to run your business seamlessly throughout this change.
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