The new UK customer tips law

The new UK customer tips law

In May 2024, the UK government introduced a new law (known as the Tipping Act) that regulates how employers handle customer tips, ensuring that tips left by customers go directly to the workers who earned them. 

As mentioned by many leading figures in the industry, this legislation has been seen as a significant step forward in protecting the earnings of hospitality and service workers, many of whom have historically seen their tips distributed unfairly or absorbed into employer profits.

What does the (new) law cover?

The new law mandates that all employers in the hospitality, leisure, and service industries must pass on 100% of the tips, gratuities, and service charges left by customers to their staff. In the past, some businesses retained a portion of the tips or used them to cover business costs, a practice that has now been banned.

The law also applies to both cash tips and those left via card payments. This is particularly important, given that card payments have become more prevalent, and concerns had arisen about employers using service charges or card tips to top up other expenses.

Only just recently, Nisha Katona, owner of Mowgli Street Food, told the BBC “the change was needed because young people depend on the law to protect them from employers who might avoid sharing tips with staff” and Miller & Carter (Mitchells & Butlers’ steakhouse concept) said it “welcomed the new law which it said brought much-needed clarity".

What will be the main impacts on businesses?

Tip distribution and fairness.

One of the key principles behind the law is fairness in distribution. Employers must ensure that tips are distributed to workers in a fair and transparent manner.

This can be done either through individual payouts to the staff who served a particular customer or by pooling tips (commonly known as "tronc") and then distributing them among all staff (front & back of house), as regulated by their "tronc master" ensuring that the allocation of tips is impartial and just. Employers cannot retain any portion of the tips to cover administration or processing fees.

Record-keeping and transparency

Under the new law, businesses will have to keep detailed records of tips received and how they are distributed, for up to three years. These records should be accessible to employees, allowing them to see how tips are being managed and whether they are being distributed fairly, providing peace of mind to employees and prevent any exploitation by employers.

Impact on employers

For employers, the introduction of this law means a significant shift in how they manage tips and service charges. While some businesses had already adopted transparent tip policies, others will need to overhaul their processes to comply with the new rules.

In 2022, UKHospitality, led by Kate Nicholls, carried out a survey which revealed that up to 20% of industry’s businesses were keeping a proportion of the service charge to help cover their own costs. This has brought up speculations and growing concerns that the new act may lead to higher menu prices, citing “operators will face pressure to protect their [operating] margins”.   

What does it mean for employees?

The new law is a welcome change, and branded as a clear “win” that will boost their income security. Many hospitality workers rely on tips to supplement their wages, and this law will provide greater confidence that they will receive the full value of their tips.

However, it has been pointed out that hourly-paid workers will have to share their cut of the service charge and tips with salaried managers as senior staff were legally bound to be included due to occasionally being required to step in and wait on tables.

Talking on behalf of employees, Michael Kill, CEO of the Night Time Industries Association (NTIA) said that they were “welcoming the move toward transparency and fairness and rightfully allowing workers to receive the tips and service charges which are intended for them.”

“This has been a long-standing issue, and we commend the government for addressing practices that have disadvantaged many workers.” 

To conclude, the new customer tips law in the UK represents a significant victory for workers, ensuring that the money customers intend to give as a reward for good service goes directly to those who have earned it. While businesses may face new challenges in compliance and administration, the overall goal of the law is to create a fairer and more transparent system for tipping, benefiting workers across the service industry.

This law sends a clear message. Fair treatment of workers is a priority in the UK’s evolving labour landscape, potentially setting a precedent for further reforms aimed at improving workers' rights in the future.