Ensuring that tips are collected and distributed fairly is of crucial importance to restaurants, bars, hotels, cafes, and other businesses in the hospitality sector. Businesses want to ensure that employees are sufficiently rewarded for going above and beyond, and incentivised to deliver the kind of outstanding service that keeps customers coming back.
However, dealing with the distribution of tips can be a delicate matter for business owners. You may be unsure of the correct etiquette for tip-sharing, and agonise over implementing a tip-sharing policy that is equitable and satisfactory to staff.
As new legislation first introduced in September 2021 clears the House of Commons, this is an opportune time for restaurateurs to consider how new tip sharing laws will impact their future operations.
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New laws around tipping in the UK – What’s new in 2023?
The Employment Allocation of Tips Bill (2022-2023) is a new amendment to the Employment Rights Act of 1996. It was first brought forward in 2021 and passed its third and final hearing in the House of Commons in January 2023. After this, it was moved on to the House of Lords for further scrutiny, where it completed its second reading in early March 2023 with no amendments made.
While this bill was first brought to the house of commons in 2021, the subject of tip sharing has been debated in parliament since 2015 when it was revealed that some restaurant chains were using service charges to supplement managerial salaries rather than rewarding the customer service staff that earned the tips.
The bill, which is set to benefit over two million service industry workers, will mean that employees have a legal obligation to ensure all tips, gratuities and service charges are paid in full to the employees that earn them. Employees will also have the right to transparency in terms of how much the company has earned in tips and how they have been distributed.
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 in how they handle and divide tips among their staff.
What does this mean for employers and their service staff?
In light of the Employment Allocation of Tips Bill, employers in the hospitality sector will need to make some definitive decisions regarding the tip-sharing policy.
As an employer, you’ll have a legal responsibility to ensure that all tips and gratuities make their way to the staff that earn them. But you still have complete discretion as to how tip monies are divided among frontline 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 on this, you will need to create a written tip-sharing policy that outlines to staff how you plan to manage and divide their tips. You will also have a responsibility to keep records of this.
For service staff
Under the Employment Allocation of Tips Bill, service staff now have the right to request your tip-sharing records, and any information they require on how tips are managed within the company. This enables 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.
This new legislation will hopefully add some much-needed transparency to the hospitality sector and demystify the allocation of tips. When employees believe that the allocation of tips is fair and appropriate, they will be much more likely to deliver outstanding service to your customers.
Sadly, 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.
Different approaches to tipping
So, what are the differences between tips and service charges, and how is this affected by the Employment Allocation of Tips Bill?
Tips are paid at the customer’s discretion and are not added to the bill. They can be paid in cash or added on the card terminal when paying by credit or debit card. Customers can tip any amount they wish.
Service charges are included as an extra percentage or monetary amount on a customer’s bill. As a business owner, you set these amounts.
While service charges are not technically classed as ‘tips’, the new tip-sharing laws do apply to them, so they must be divided between employees.
Customers can request to remove the service charge from their bill or dispute its amount.
How to manage tips successfully at your restaurant
If you want to pool all your tips and share them 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.
Staff keep their own tips
The first option is to allow staff to keep any tips handed to them. This mitigates the need to appoint a troncmaster and divide tips yourself. However, it raises issues of fairness as the person receiving the tip may not be the only one who has created the customer experience, and bar and kitchen staff would be omitted.
Moreover, the person who finalises the customer’s bill, and therefore receives the tip, may not be the person the customer wished to tip.
Tip pooling requires all tip money to be pooled into a shared ‘pot’ and divided periodically among staff members on a weekly or monthly basis.
There are a few ways in which this can be done:
Tips are divided equally among all staff
Tips are separated by section (e.g. floor or bar staff)
Hybrid tip pooling – where staff keep a certain percentage (usually 30-50%) of what they earn directly and pool the rest
How to accept tips with Square
As a restaurant owner, it’s your responsibility to decide how tip sharing will be implemented. Square can help you manage tips effectively and stay compliant with new legislation.
Tips can be expressed either as a monetary amount or a percentage of the total bill, and users can even set custom tip amounts, which can be adjusted at any time. Used in conjunction with Square’s team management solution it can add transparency to staff earnings and empower staff to deliver stellar service knowing that their efforts will be rewarded.
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