Legal

What changes to service charge legislation are on the horizon?

6 Jan 2022 By Amanda Finn

Amanda Finn explains the implications of the government’s plan to ban hospitality business owners from keeping customers’ tips

The government has confirmed restaurant owners will be banned from taking customer tips and service charge payments from around two million waiting staff and hospitality workers, after it published a long-awaited response to a consultation on tipping, gratuities, cover and service charges, which closed in June 2016.

The Unite union estimates that the five-year delay since the consultation has cost restaurant workers around £10,000 each in lost tips.

The government has confirmed it will introduce legislation which prevents employers from making any deductions from tips or service charges received by staff and made via card payments, other than those required by law (National Insurance and income tax). Cash tips are already protected.

Some of the other measures which will be put in place include:

  • Employers will be required to distribute tips and service charge payments in a way that is fair and transparent, have a written policy for tips and record how they have been dealt with;

  • Employers must distribute tips no later than the end of the month following the month the tip was paid;

  • Make provisions to allow workers to make requests for information relating to the employer’s tipping record, to which they should also reply within four weeks of the request being made;

  • Breaches of these obligations will be enforced in employment tribunals.

The government carried out research which showed that a number of businesses were adding a discretionary service charge to customers’ bills which was then kept in full or part and not passed onto staff. 

There has also been a greater switch to using cards for payment during the pandemic, which has made it easier for businesses to keep funds paid by card, as cash tips are already protected. 

In the future it will be illegal for employers to take any tips or service charge payments from restaurant workers, but it will be the responsibility of the workers to bring an employment tribunal case against their employer if they don’t follow the new rules.

The priority for business owners now will be to ensure they review how this change in legislation will affect their business model and make sure their policies are up to date to comply with it. With the ongoing shortage of staff in the broader hospitality sector, those businesses that look after and reward their staff well, will benefit in the longer term.

Amanda Finn is a partner and head of employment at Gullands Solicitors

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