Staff tips: what will the new law mean for my business?

Under proposed new legislation, restaurant staff will soon be legally allowed to keep 100% of tips. Coodes’ Employment team comments on the proposals and what it will mean for restaurant owners.

A new law banning restaurants from keeping tips from staff has been announced by the Government, in a bid to end exploitative employment practices. With almost 150,000 hotels, pubs and restaurants in Britain employing around two million people, these changes will have a significant effect on many.

What does the law currently say about tips?

Although most restaurants distribute tips evenly and fairly among staff, this has purely been down to a voluntary code of best practice – there is currently nothing in the law requiring them to hand over tips.

Since 2009, gratuities from customers cannot be used by an employer to count towards the national minimum wage, but there is no requirement for the tips to be paid.

Some employees are contractually entitled to receive tips paid to their employer, but that depends on factors including how the contract is worded, historic custom and practice.

In reality, this means most staff will only be contractually due their hourly basic salary and the employer can keep any tips or service charge, particularly if paid by credit or debit card. Restaurants routinely keep an amount from card tips to cover the costs of credit card charges and processing payments.

What has changed regarding tips?

There has been growing disquiet about the fact that tips often do not reach the individual who the customer intended it to go to – and that employers are entitled to keep them instead. Back in June 2018, staff from a well-known high street chain of restaurants went on strike over the issue and calling for change.

At their recent conference, the Labour party pledged that if elected they would ensure staff kept 100% of customer tips. But the Conservative party has now announced they will soon introduce the legislation themselves.

What does it mean for me as an employer?

It looks very likely that soon all tips and service charges, whether paid in cash or by card, will have to be passed to staff without deduction by the employer. Employees will be obliged to pay tax on them as earnings.

Do I need to do anything now?

The law regarding tips remains the same for now, but further details of the proposed legislation are likely to be announced quickly. This would therefore be a good time for employers to review their own policies and be prepared for the change in legislation.

Our Employment team provide support to businesses helping them keep ahead of recent changes in Employment Law. If you need some friendly advice, call Steph Marsh on 01579 324 017 or send her an email.