Employers could be taken to tribunal over withheld tips under government proposal

Hospitality firms urged to start planning how to divide service charges fairly, with experts saying transparency is key

Employers in the hospitality sector will be legally required to pass tips on to their staff and could face tribunal claims if they fail to do so, under new rules outlined by the government.

The government has said the changes will help around two million hospitality workers, many of whom earn minimum wage and rely on tips to top up their income.

Under the new rules, employees will be able to request information relating to their employer’s tipping record, and will be allowed to bring forward an employment tribunal claim if their employer is suspected of breaking the rules.

The employment tribunal would have the power to fine any employer found to be breaking the new rule, in addition to requiring the employer to compensate workers for any lost tips.

At the moment, businesses are able to choose whether to pass tips on to workers or keep them. However, the government has said it is acting over concerns that the move towards a more cashless society has made it easier for employers to withhold tips.

Four in five tips are now made through card payments, as opposed to cash given directly to the serving staff, which the government said had “accelerated dodgy tipping practices” by employers.

Get more HR and employment law news like this delivered straight to your inbox every day – sign up to People Management’s PM Daily newsletter

It also said many businesses that added discretionary service charges onto customers’ bills were keeping part or all of these charges instead of passing them on to staff.

Paul Scully, labour markets minister, said: “Unfortunately, some companies choose to withhold cash from hardworking staff who have been tipped by customers as a reward for good service.

“Our plans will make this illegal and ensure tips will go to those who worked for it. This will 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 government has not specified when these measures will be coming into force.

However, Paul Holcroft, managing director at Croner, advised businesses that haven’t done so already to start preparing now how they plan to fairly distribute tips among staff, and ensure their policies are updated in line with these new changes. 

“Businesses may also need to work with their payroll providers to ensure tips are reflected in employees’ take-home pay. However, doing so might pose some logistical issues in ensuring employees are given a proportionate share of tips,” he said, adding that there were different ways employees could divide tips.

The changes were likely to improve motivation and retention, Holcroft added, but cautioned that issues may arise over employees not believing that tips are being shared fairly. “As such, it’s beneficial for employers to have a clear plan in place, which can be communicated to their teams, to minimise any resistance or grievances,” he said.

This was echoed by Juliane Caillouette-Noble, managing director of the Sustainable Restaurant Association, who told employers that "transparency is king”.

“All forward-thinking employers should also welcome the new regime, as long as allowance is made for reasonable tronc costs. Businesses that withhold money owed to their staff should expect to face the legal consequences,” she said.

The union Unite has estimated that waiting staff in the UK lose on average £2,000 a year in income because of withheld tips.

“We regard this as a first step to stamping out the long-hours culture and exploitative working environment that bad employers have got away with for far too long in the UK hospitality sector,” said Dave Turnbull, national officer for hospitality at Unite.