Tip Sharing in the UK: A Guide for Employers

Empleado atendiendo y cobrando a un cliente.

Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.

In September 2021, the government introduced plans for new legislation around tip sharing that make it a legal obligation for all employers to ensure employees receive 100% of the tips they receive. This is set to enhance the rights of two million hospitality workers across the UK – but what does this mean for you as a restaurant business owner, and what does this mean for the future?

New laws around tipping in the UK

According to new plans set out by the UK government in late 2021, 100% of tips given by customers must now go to staff and cannot be kept by business owners or management.

This includes tips received via card payments. With the usage of contactless cards and applications like Google and Apple Pay increasing, cashless now accounts for 80% of tipping methods. It’s more important than ever for business owners to devise ways of tip sharing to ensure that staff are receiving this money fairly.

In fact, a recent survey by YouGov uncovered that 43% of people feel less confident that staff will receive a cashless tip – even when the tip is paid with a bank card.

Clarity around tip pooling, the sharing of tips between several staff members, has been forthcoming. In light of the new legislation, business owners will be required to follow a statutory Code of Practice, requiring utter transparency regarding how they handle and divide tips among their staff.

What does this mean for employers and staff members?

For employers

As an employer, you’ll have to decide how best to share tips among staff. It’s a good idea to speak to your employees so they have a chance to share their opinion – it’s their money, after all.

Once you have decided this, you will need to create a written policy that outlines to staff how you plan to manage and divide their tips. You will also need to start keeping records of this.

For staff members

Your employees now have the right to request your tip sharing records, and any information they require on the management of this money. This is to allow them to bring evidence to an Employment Tribunal, if they believe the terms of the new statutory Code of Practice have been broken.

From a monetary perspective, tips often make up a large proportion of income for hospitality workers, the majority of which earn the national minimum wage . These new plans should provide clarity and guidance for many in the industry.

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Tipping behaviours in the UK

Did you know:

38% of employees who took part in the government’s call for evidence said they didn’t know where their tips went. A further 58% said they only knew where part of the money went.

The general ‘accepted’ tipping amount is around 10-15%, depending on the location of your business.

According to YouGov, around 35% of people always leave a tip. Whereas only 5% say they never leave a tip.

53% of people say they would rather leave a cash tip than be given a service charge. Some believe that adding an automatic service charge removes choice, and is often disputed if the service was poor, for example.

Different approaches to tipping

So, what are the differences between tips and service charges, and how is this affected by the new government legislation?

Tips

Tips are not included automatically on the bill and are paid at the customer’s discretion.

Customers can decide how much they wish to give – there is no minimum or maximum amount.

Tips can be paid in cash, or as an extra amount when paying by card. You can give the clientele the option to select or enter the amount they wish to pay on the card machine.

Service charges

Service charges are included as an extra percentage or monetary amount on a customer’s bill. As a business owner, you set these amounts.

Service charges are not technically classed as ‘tips’. However, the new laws also apply here, so you will still have a legal obligation to divide the money between your employees.

Customers can request to remove the service charge from their bill or dispute its amount.

How to make tipping successful at your restaurant

If you want to pool all your tips and share them out equally among staff, you will need to assign a ‘troncmaster’, or ‘tronc’. This person is responsible for tip management. As someone who handles money and, technically, pays staff, they will need to report to HMRC.

A tronc who manages tip pooling can be any member of staff, besides yourself, or someone who holds a high position of responsibility in your business. They can be part of your management staff, though this is usually discouraged to ensure that tips are shared out fairly.

The troncmaster method means that tips can be excluded from National Insurance tax, meaning your employees will receive 100% of the tips they’ve earned.

There are a few different approaches when looking at ways to manage tips.

Keep your tips

There is the option of allowing your staff to keep the tips handed to them, though this may result in some debates around fairness. However, it does save you from organising a troncmaster and dividing tips, for example.
However, this method is often disputed by employees, as more than just a single staff member goes into creating the customer experience – think kitchen and bar staff.

Furthermore, the person who finalises the customer’s bill, and therefore receives the tip, may not be the person who has been serving them for most of the night.

Tip pooling

Tip pooling can be done digitally and physically. Simply put, all tip money is ••pooled into a ‘pot’ and divided among staff members••.

As an employer, you, along with your troncmaster, decide how often this is done. For example, is it done monthly or weekly?

This method ensures that no-one is left out and all staff members are rewarded for their work. You may have to consider re-calculations if some staff members have been off sick or on holiday, but it does foster teamwork and helps to reduce income inequality across your business.

There are a few different tip pooling methods to consider, however:

Evens

The most common approach of tip sharing – this is where you break tips evenly across all members of staff. Again, this ensures that no-one is left out, and helps to bridge the income inequality gap.

However, there is the issue that some staff members may believe that others do not deserve an equal amount of money, due to attitude or effort. You will have to take this into account, and whether you want to be seen to be rewarding poor performance.

By section

This is where tips are separated by team, seeing that each section pools and shares the money given to them – e.g., floor staff and bar staff.
However, this could result in some unfairness. For example, fewer people tend to tip at the bar, though this does not reflect on your bar staff’s efforts and challenging work.

Hybrid tip pooling

Hybrid tip pooling is a method in which staff keep a certain percentage of what they earn directly and pool the rest. As the business owner, you decide the percentage they keep – the usual amount is limited at around 30-50%.

It can be a little difficult to split both cash and digital tips, so you are reliant on the trustworthiness of your employees. This may mean you have to pool it initially anyway, and then work out the split percentage.

Taxes on tipping for employers

Whether income tax is applied to tips all depends on how tips are managed and paid. If your employees are receiving cash, you need to make sure they report any money they receive to HMRC. They will need to do this by filling in a Self Assessment tax return.

Tips and service charges received digitally will usually be added onto their monthly wage slips, so these will be taxed respectively along with the rest of their salary.

Tips do not have to be reported to HMRC if they are managed by a tronc. This money is also not affected by National Insurance.

How to accept tips with Square

With Square, you can easily accept, access, and manage tips from your point-of-sale (POS) system.
Simply open the Square app and go to your main dashboard to enable tipping in-app on card machines and terminals.

Select the amount you want to allow customers to tip – either in % or £. For transactions that amount to less than £10, you can select from – no tip, 50p, £1, £2. For bills that come to more than £10 – no tip, 5, 10, 15%.

You can also set custom tip amounts, which can be adjusted any time.
There’s also the option to select whether tips are added before or after tax has been applied to a customer’s bill.

It is all down to you as a business owner and employer to decide how you plan to implement tip sharing within your restaurant. These new regulations provide a wonderful opportunity for you to open channels of communication between yourself and your employees - speak to your staff beforehand to see how they would prefer to receive their tips. You want to encourage trustworthiness and teamwork within your business, to better the overall customer and staff experience.

When looking at ways to aid collaboration and promote clarity across your company, Square for Restaurants is a great POS solution to aid in running your restaurant.

It allows you to manage your business all in one place, from staff to stock, and includes features to help you accept tips and split bills. It streamlines business processes, meaning all the information you and your staff require about tips and service charges is readily available.