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Businesses must pay workers 100% of tips under new law

2-minute read

Catriona Smith

7 October 2021

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In an overhaul of tips and gratuity practices, the government is bringing in new laws to make it illegal for employers to withhold tips from workers.

While this was first consulted on in 2016 after media highlighted malpractice and unfair distribution of tips, the government has now said that they’ll bring forward the long-awaited Employment Bill.

In an announcement on 24 September, the government published plans that will require all tips and service charges to go to staff. While cash tips are already protected by law, this new legislation will go further to cover card payments in an increasingly cashless society.

Many hospitality workers earn the national minimum wage or living wage and rely on the additional boost from tips.

What will the legislation say?

The new legislation is to include the following:

  • employers will be required to pass on tips to workers without any deductions
  • a statutory code of practice will set out how tips should be distributed in order to demonstrate fairness and transparency
  • employers should have a written policy on tips and record how they manage tips
  • rights for workers to request information about an employer’s tipping record – this will enable employees to bring credible claims to an Employment Tribunal

When is the new tipping law coming in?

These changes will be included in the Employment (Allocation of Tips) Bill, which was part of a public consultation in 2016. The Bill hasn’t worked its way through Parliament yet but is expected to be brought forward soon, and the rules come into effect at least one year after the law is passed – so realistically, the earliest the law could be in place is late 2022.

What does this mean for businesses?

Under the new legislation, if an employer breaks the new rules they could be taken to an employment tribunal. This could mean compensation and fines, so it’s important that you’re on top of what you need to do to comply with the new laws.

What is a tronc – and how can it help your business?

A tronc is a system sometimes used to pay employees their share of tips and service charges in the hospitality sector. A ‘troncmaster’ will be in charge of deciding how the money is divided. They’ll need to run payroll and report to HMRC.

Using a tronc can help your business manage your tax implications when it comes to tips and gratuities. It’s helpful as a tronc on a payroll can mean the tips are excluded from National Insurance contributions, whereas if you manage the sharing out of tips yourself, you’ll be responsible for NICs as well as income tax.

Find out more about tips at work on the UK government website.

Keep an eye on the Knowledge centre and we’ll publish more on this story as soon as we know when the new tipping laws are due to come in.

Have you got any questions about the new tipping legislation? Let us know in the comments.

Photograph 1: Monkey Business/

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