New law: Tips must be paid to staff in full, without deductions, under upcoming new laws

Under the new rules employers in, for example, restaurants, cafes and pubs, will no longer be allowed to retain tips for staff, or any part of them, where the customer pays by card – which, as a result of COVID, now means around 80% of all customer payments.

Instead, they will have to pass on all tips to staff with no deductions (except for tax), and comply with a new, statutory Code of Practice on Tipping. They must also have a written tips policy which ensures tips are distributed in a fair, transparent and consistent way. Tips distributed by a tronc must be paid to employees not later than the end of the month after the month in which the tip was paid by the customer.

Employers must also record how they deal with tips and provide information from those records, within four weeks, to employees who request them.

Employers who fail to follow the rules can be taken to the Employment Tribunal.

It is not yet clear whether employers will be able to deduct bank charges from the amounts they have to distribute to staff. Employers will certainly not be allowed to make an administrative charge for handling tips.

There is nothing in the new rules to stop businesses requiring customers to pay tips direct to staff in cash, rather than add them to a card payment. This could result in fewer tips for staff overall, as fewer customers carry cash now.

In the meantime, employers are already banned from counting tips when calculating whether an employee is being paid the minimum wage, and there is a voluntary code of practice for employers.

Operative date

• To be announced

Recommendation

• While the date the new laws come into force has not yet been announced, employers should review their policies, procedures and systems to ensure they will be able to comply in due course.