New tipping rules to come into force within months

Five years after carrying out a consultation, the government is going to make it illegal for employers to withhold tips from workers. The change to legislation, due to take effect over the next 12 months, is not just for staff in restaurants, hotels and bars, but also anyone employed in industries such as hairdressing, casinos and private car hire.

With some 80% of tipping now occurring by card, the change is considered urgent. Cash tips to workers are already protected, but for card tips, an employer can either choose to keep tips or pass them on to staff. This new change to legislation will bring consistent treatment regardless of how a tip is paid.

Legislation

The legislation will mean that employers will have to:

  • Pass on all discretionary card tips to workers without any deductions. Employers have typically made deductions to cover card processing costs, payroll, staff food and drink, recruitment and training.
  • Distribute tips fairly and transparently, have a written policy on tips, and record how tips have been dealt with.

Workers will have the right to make a request for information relating to an employer’s tipping record, enabling them to bring an employment tribunal claim for compensation if the rules have not been followed.

Tronc scheme

A tronc is a separate organised pay arrangement used to distribute tips, gratuities and service charges. The troncmaster runs the related payroll and reports information to HMRC.

A tronc scheme run by an independent troncmaster will be the most effective way for many employers to comply with the new requirements.

A tronc, if run independently, will meet the fair and transparent requirement, and workers can have a say in how tips are shared, which should help improve staff motivation. Another benefit is that tips shared from a tronc are free of NICs, but this is not the case where the employer decides how tips are shared out.

HMRC’s guide to how tips are taxed can be found here.

 

Talk to Barnes Roffe today
Share this page:
Contact Us
ICAEW The Chartered Institute of Taxation ACCA IPG IR