With over 150,000 businesses operating within the hospitality and leisure sectors, it is no surprise that tipping is considered an essential source of income for these businesses. However, the debate on who should be receiving these tips is increasingly being discussed: the 2million UK workers who service the UK or their employers?
On 2 May 2016, the Business Secretary announced plans to review the process of tipping in order to increase transparency for consumers and promote ‘fairness’ for employees. This announcement was initiated following a consultation last year that Called for Evidence on the tipping practice in the hospitality and leisure industries. The consultation indicated that 100% of tips should be paid directly to employees, 84% of employees wanted all tips either going to the employee or to be shared in a tronc without any employer control.
Consequently, the government agreed that an intervention was needed and launched a second consultation, which outlined several proposals to be put forward. The proposals included updating the Voluntary Code of Practice, preventing deductions in discretionary payments and increasing transparency for customers so they can see and suggest how their tips should be distributed. The Voluntary Code of Practice is not mandatory; however, a legal consideration may be made due to suggestions made by the sector, including the British Hospitality Association (BHA). What is more, the government will look into businesses implementing a well incentivised tronc system and whether there should be a ban on levying table sales charges on employees.
Change your Tipping Process
The government is on a mission to tackle poor and unfair tipping practices; therefore, ensure that you have a tipping process in place that benefits both you and your employees. For smaller businesses, discretionary payments contribute massively to not only your employee’s upkeep, but also the sustainability of your business. Allowing your employees to keep tips could be a viable option and help to improve productivity and increase morale amongst the team. What is more, you may not need to increase salaries if this works well.
There are several ways to collect tips, but whichever way you choose, you must make sure that it is done fairly and your employees and customers have a clear understanding about where their tips are going. Below are a few options:
- Service charge: The company will always collect and distribute service charge money accordingly to employees. This will then be split respectively amongst the employees and company.
For cash tips:
- Allow employees to keep 100% of the tips: Employers have no control over this and employees keep every tip they receive.
- Tronc: Informally distributed: A tronc machine where tips are shared out by one of your employees
- Tronc and Troncmaster: Formally distributed: a tronc machine is used, however there is a Troncmaster who is solely responsible for the distribution of the money, which is shared more formally to employees.
If you would like guidance on this, our “Gratuities, Tips and Service Charge: Is VAT, Tax and NIC Payable?” may be helpful or contact me directly at firstname.lastname@example.org.
The closing date for the consultation is 27 June 2016. Following which the government will publish a summary of the responses and the plans moving forward, which we will endeavour to keep you updated on.