Changes to Tips and Service Charge Rules
By Ben Steele, Managing Director, Streets Steele
As of 1st October 2024, new legislation will change the way businesses manage tips. Here’s what you need to know to ensure compliance and avoid penalties:
What’s changing?
The new law mandates that all qualifying tips - whether received via cash or card - must be fairly distributed to staff.
You can no longer withhold tips and the allocation must follow clear, objective criteria. The government has issued a statutory code of practice to guide this process.
Qualifying tips
It applies to all “qualifying tips, gratuities and service charges” and applies to the full amount paid by the customer (so any card reader fees should be disregarded).
Tips / Gratuities: spontaneous payments offered by the customer, either by cash or card payment.
Service Charges: amounts added to a customer’s bill before it is presented to them, often a percentage.
If staff directly receive and keep tips, without employer involvement, the new law doesn’t apply. However, if you control or influence how tips are collected and shared (such as pooling cash tips), you must adhere to the new guidelines.
Tipping apps are a grey area, but where this involves operating according to an employer’s instructions (as is often the case) then this will fall within the scope of the Tips Act.
Record-keeping and allocation
- Tip allocation: tips must be allocated to employees by the end of the month following the one in which they were received.
- Documentation: You must keep a record of all allocated tips for up to three years if tips are regularly received. Employees can request access to these records once every three months.
- Tipping policy: If you receive tips regularly, you’ll also need to have a written tipping policy in place. This document should outline how tips are managed and distributed.
Why this matters
Failure to comply could result in legal action from employees.
If you don’t allocate tips within the set timeframe, lack a written policy, or fail to maintain proper records, your staff could raise a claim against your business.
Next steps for your business
To ensure compliance:
- Review and update your tipping practices to meet the new legal standards
- Develop a written tipping policy, if applicable
- Keep detailed records of all tips and their allocation to staff
If you need any help preparing for these changes, please feel free to contact us.
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