Tips bill: three things HR needs to know

As a bill ensuring fair tips for all workers reaches its final stages in parliament, People Management outlines key areas the sector should be aware of

Witthaya Prasongsin/Getty Images

A bill that aims to outlaw the withholding of tips and give more protections to employees is poised to become set in stone in the near future.

The Employment (Allocation of Tips) Bill, led by Virginia Crosbie MP, has recently passed the Committee reading stage, meaning it could soon become law in England, Wales and Scotland.

The bill, which would benefit more than two million people, including agency workers, will mean that all tips paid in cash or on a card will be fairly allocated to all workers with no deductions for processing fees.

Sarah Williams, head of employment at Taylors Solicitors said that HR managers need to be clued up on the new bill, as it will place a “greater obligation” on employers to ensure
tips and gratuities are allocated fairly.

“HR managers will be required to keep clear records of all tips and gratuity payments for general employment law purposes and to have in place a clear and well drafted tips and gratuity policy,” said Williams, adding that this will help to "protect employers" in the event of a claim.

With this in mind, what do employers need to be aware of should the bill become law? People Management asked legal and HR experts how businesses should prepare.

What does ‘fair allocation’ mean?

Under the potential new law, tips will have to be fairly allocated to workers at one workplace. This means they cannot be shared equally with another restaurant belonging to the same employer, for example. 

But how will employers go about fairly allocating tips? Ian Moore, managing director at Lodge Court, says doing this may require more effort than employers realise: “Many employees may feel they deserve a larger share of tips than their colleagues because of effort invested, time worked and the overall impact on business.” 

Lisa Seagroatt, founder and managing director of HR Fit for Purpose, says there will always be the possibility of conflict that comes from fair tipping. “There is the possibility of someone receiving a share of tips who may not have contributed to the end result, so it may feel unfair to others,” she says, adding that it’s likely these people are “invisible staff behind the scenes who are often excluded as their work isn’t obvious when it comes to tipping”.

On the issue of withholding tips for accidents or breakages (which some employers already do), Seagroatt says this would not be fair or moral, as accidents always happen. “If there’s an unusually high percentage of breakages then line managers should address this as there may be an issue causing this to occur,” she highlights.

Kate Palmer, HR advice and consultancy director at Peninsula, says employers will need to identify the best way to fairly distribute tips, which may mean working with payroll providers to ensure that tips are reflected in take-home pay. 

However, logistical issues may occur. “Some employers might choose to give an equal allocation to all employees regardless of their role in the organisation,” says Palmer, while others may prefer to give tips that staff were directly involved in earning; for example, with the service charge, or total cash tips on the table they served.

Having a written tips policy

The new law would mean all employers would be required to have a written tips policy, and would need to make this available to all workers at that business. Written records of tips, including how much has been paid to employees, must be kept for three years, and employees will be able to request limited relevant information about these.

Employees will be able to complain to a tribunal if their employer fails to record tips, or does not have a written policy on tips – they will be able to do this within three months.

In the event of any tips being over allocated to employees, employers will not be able to bring restitution claims. The potential law is also not retrospective, and employees will not be able to opt out of their rights.

Moore highlights that failing to treat employees fairly could lead to “resentment, disputes, complaints or even a loss of the most skilled workers”, and adds that businesses wanting to stay on the right side of the new law should track performance. 

“[Businesses] should put two things in place immediately – a performance management programme for every worker to ensure they are motivated and incentivised to do their best every day, and a clear written policy on how the business defines a fair allocation, which takes into account damage or breakages, [and] hours worked,” says Moore, adding that the policy should also include “instructions on how to raise a query or dispute so that it can be dealt with quickly and effectively”.

Is this a positive step forward for businesses and workers?

Emily Charlesworth, HR technical consultant at AdviserPlus, says it is positive that employees will have an understanding of their rights as a result of the bill. She says being treated fairly will likely lead to improved employee experiences, translating to improved productivity and happier customers: “Not forgetting the fact that customers want to know that their tips are going directly to staff, so this should be good for business too.” 

Simon Kelman, a spokesperson for Breakroom, says the news should be welcome to hospitality employers as well as employees, as it could make hiring easier. “Candidates are being tempted away by other sectors such as supermarkets, which are offering better pay and other real benefits such as flexible hours and proper breaks,” he says, adding that the bill could make hospitality more appealing to a generation of workers “who prioritise pay, hours and a responsible employer or brand”.

Under the potential new law, tips will be allocated to workers no later than the end of the month following the month that the tip was paid. Palmer says: “While it is expected [the bill] will have a positive impact, since employees are receiving the full reward for their hard work, issues may arise over staff not believing that tips are being shared fairly.” Once the new statutory code of practice has been released, employers will have a better understanding of how to implement the new rules to ensure fairness and transparency.

The law would also mean that, if tips are unfairly allocated, or not allocated on time, employees would be able to complain to a tribunal. Employers will have to pay up to £5,000 for consequential financial losses if they have acted unlawfully.

However, Bryan Simpson, spokesperson for Unite Hospitality, says that while fair tips legislation is long overdue, workers will have to “fight for what they are legally entitled to”. “Like all statutory rights, from the Health and Safety at Work Act to national minimum wage, just because it's the law, doesn't mean that every employer adheres to it.” 

He points out that in low-wage sectors like hospitality, workers often rely on tips to pay rent and bills. “The notion that they will have to pursue a hostile employer for a year to get what they’re owed is of no use to workers whatsoever,” he adds.