New tipping legislation put on hold

Workers and trade unions will be disappointed to learn that the plans have been shelved to introduce legislation which would prohibit hospitality companies from taking a portion of staff tips and service charges. 

The government announced last September that “as soon as parliamentary time allows” a new law would be passed that required employers to pass on all tips, gratuities and service charges to workers without making any deductions. It had been hoped that the plans would be introduced under the long-awaited Employment Bill however there was no mention to the proposed changes during the Queen’s Speech and the Business, Energy & Industrial Strategy department confirmed that the legislation had been dropped. 

What is the current position on tipping?

Employers typically have a monopoly over service charges and, in most instances, tips paid by card. Whilst under Regulation 10(m) National Minimum Wage Regulations 2015 tips do not count towards the national minimum wage, in the case of Nerva & others v United Kingdom [2002] IRLR 815 ECHR, the European Court of Human Rights held that tips paid by cheque or with credit card to the employer’s business, in turn paid to the worker as “additional pay”, were sufficient to amount to renumeration when calculating their statutory minimum wage entitlement. 

What would have been the changes under the new legislation?

Service charges, most commonly a 10% surcharge added to the bottom of a restaurant bill, which employers currently have no obligation to share with staff, would have been handed to the employees without deduction under the proposed legislation. The Business Minister, Paul Scully, commented that the aim of the new legislation was to “provide a boost to workers in pubs, cafes and restaurants across the country, while reassuring customers their money is going to those who deserve it.” The proposal was particularly welcomed by workers, during a time where inflation is at its highest and the cost of living continues to rise.

In addition, where employers have significant control over tip distribution, they would have been required to distribute the tips, gratuities and service charges in a fair and transparent manner. In conjunction with this, the legislation would have introduced a new right for workers to be able to make a request for information about an employer’s tipping records. In theory, this right could make it easier for workers to bring claims to the Employment Tribunal if they can show that their employer failed to act in a fair and transparent manner.

How would these changes have affected employers?

The immediate impact for employers would have been a drop in profit if they are no longer permitted to keep the proceeds of service charges. Other proposed changes would have required employers to have a formal tipping policy in place as well as a record of how they manage their tips (these will be the kind of records the worker can request to access it would seem). There was also a plan for a statutory Code of Conduct to be implemented, ensuring fairness and transparency when it comes to tip distribution. 

Indisputably, these changes would make for a better treated, and as a result, better motivated workforce. In a sector that has particularly suffered from the effects of the Pandemic, a more productive workforce could help drive business- a win win perhaps?

Whether the plans will be revisited in the coming months will be a matter of policy and one on which those in the hospitality industry will be keeping a close eye.

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