The government has announced plans to introduce new rules which will govern tips and gratuity practices in the hospitality industry and provide more transparency between employers and their workers.

These plans are proposed in response to a government consultation on tipping, gratuities, cover and service charges, which closed in June 2016.

These matters have been attracting wide publicity recently, as questions have arisen about the gratuity policies of the big names on the High Street. The pressure is on for employers to get this right.

Under current legislation, businesses who receive tips by card have the choice of whether to keep or pass this on to their workers, whereas cash payments are the property of the staff. This problem has been exacerbated by the Covid-19 pandemic, where it is now much more likely for the hospitality industry to receive tips by card as people move away from using physical cash. Often, tips are included as part of a voluntary service charge, of which it is unclear who receives the benefit.

These new measures are set to come into force within the next year and will include the following expected provisions:

• A requirement for all employers to pass on tips to workers without any deductions. This will include removing any administration fees and charges applied by credit card companies, other than deductions required by tax law.
• The introduction of a statutory Code of Practice, which will set out how tips should be distributed fairly and transparently.
• An obligation on employers to have a fair and transparent, written policy on the distribution of tips and a record detailing how tips have been dealt with.
• Increased rights for workers to make a request for information relating to an employer’s tipping record, who must respond to such requests within four weeks.

This may allow workers to bring forward credible claims to the Employment Tribunal and penalty sanctions to be applied against the employer in the event of non-compliance.

Whilst these changes will be welcomed by an estimated two million hospitality workers, some may argue that this is just one of many new challenges to the hospitality industry that has been severely impacted by the Covid-19 pandemic. Many hospitality businesses are operating at limited capacity or have not opened at all following the ease of Covid-19 restrictions. According to the Office of National Statistics, the hospitality sector’s vacancy rate is twice that of the UK economy as a whole, with commentators citing long, unsociable hours, Brexit’s tightening of immigration rules and low pay as reasons for the shortage.

This legislation comes at a difficult time for the hospitality industry and the sector will naturally have concerns as to the cost to the employers arising from these changes, which may in turn impact on the employees that the legislation seeks to protect. The government has said that the tipping legislation will form part of a wider package of measures set to provide further protections around workers’ rights. There is no doubt that further support will be required to an industry heavily impacted over recent years.

At this stage, we do not have insight into the detail of the proposed legislation. However, given these plans for changes within the hospitality industry, it is a good idea for employers to prepare themselves. Employers should think carefully about their approach to tipping, review their current tips and gratuities policies and prepare for any changes that they may have to make. These decisions may be difficult and have challenging outcomes for both employees and businesses.

Charles Russell Speechlys have prepared a survey aimed at employers within the hospitality industry, and will advise upon attitudes and anticipated actions by employers in the coming months, in preparation for the legislation’s anticipated introduction in 2022.

If you have any questions, or would like specific advice, please contact our expert lawyer in this area, Employment Partner Michael Powner at Michael.Powner@crsblaw.com.