What Does The New Government ‘Allocation Of Tips’ Bill Mean? 

New legislation which will allow hospitality staff to keep their tips and service charges may well come into law after winning backing from MPs as a recent private members’ Bill on ‘tips’ was put forward by the Conservative MP Dean Russell.

No doubt you have seen stories in the hospitality media relating to new legislation that will ensure 100% of tips go into the pockets of workers. Mayur Shah, the Head of Payroll at Paperchase Accountancy has been investigating the new Bill and can now report what all the noise is about! Here are the key points:

The details

Now, Paperchase understands a lot about Tronc, however, like when you buy a house, you engage an expert, a solicitor, to conduct the legal works. So, we spoke to our friends at WMT and Buzzacott, the two leading TRONC specialists in the UK, to explain the changes.

We asked Peter Davies, Managing Director of WMT Troncmaster Services Ltd to simply outline his understanding of how the legislation would work when it finally becomes, and these are his salient points:

Allocating fully to workers

100% of the face value of the amounts paid by customers are to be distributed to workers with the exception of any statutory tax or National Insurance deductions required as a part of the payroll process. All tips must be paid to workers by the end of the month following the month in which they were paid, so (for example) a tip paid on 25th July 2022 by a customer must be paid to staff no later than 31st August 2022.

Distributing tips across sites

We understand that tips paid by customers must be paid to workers who have worked at the same place of business where the tip was received. We also understand funds generated at one site cannot be paid to workers from different sites operated by the same business unless workers have actually spent time at the site where the tip has been paid. It may also be possible to pay a share to workers at “non-public” places of business such as Head Offices and dark or central production kitchens, however this needs clarification.

Fair allocations

An employer will be obliged to demonstrate that tips have been allocated “fairly and transparently” to workers. An employer does not have to operate a tronc system to fairly distribute tips to workers. It will be possible for an employer to contractually agree to distribute a specific amount of tips to a worker, although this will of course result in National Insurance Contributions being due. However, where an independent tronc is used which satisfies the criteria for exemption from National Insurance (which are not changing) this will automatically be deemed as “fair” and in having such a tronc the employer will have met their statutory obligation for “fairness.”

Transparency

Under the new legislation, workers will have the right to see an employer’s record which should demonstrate how that employer has distributed 100% of tips to workers within the time period permitted by law, and that any allocation carried out by the employer has been “fair”. Workers will not be entitled to see the precise details of the allocation including how much has been paid to other colleagues and fellow members of staff, but if an employer does not maintain sufficient records, or refuses to provide them to a worker upon receipt of a qualifying written request, an employee may bring an employer in front of an Employment Tribunal. Should the Tribunal uphold such a claim then they may make an order that the employer recompenses the worker, and the Tribunal may also make an additional compensatory award of up to £5,000.

Agency staff

Currently, agency workers do not receive a share of tips, due to the practical difficulties in paying and taxing monies to workers who are not employed by the business and are not on their payroll system. The new legislation will protect agency workers, and their statutory right will be to have a to have a fair share of tips on the same basis as directly employed staff. Agency workers cannot be excluded or disadvantaged simply because they are provided through an agency. They must be paid in full with only statutory deductions permitted (PAYE and National Insurance).

Tronc & pay reductions

A worker will no longer be able to agree to reduce their levels of basic salary in return for qualifying for, or receiving, a share of tips. Such a change is often made when an employer decides to set up an independent tronc system for the first time. This will mean that businesses who currently do not operate a tronc will need to make a once-and-for-all decision on whether or not to introduce tronc in advance of the new legislation, and going forward new businesses will need to make the decision well in advance of recruiting staff. Also, it will be illegal to use any form of tips and service charges to meet an employer’s obligations under the National Minimum Wage Regulations, whether or not a tronc is used.

Mark Taylor, Head of Tax Investigations at Buzzacott had the following comments to make:

“In our experience, and certainly among our tronc portfolio of clients, hospitality businesses already wish to fairly distribute to their staff service charge, tips, and gratuities (‘tips’), spontaneously paid by customers. Their desire is not only to reward their talent appropriately but also to retain them. Despite our belief that some aspects of the proposed legislation are unnecessary, we are pleased to see that the benefits of using a corrected implemented tronc arrangement by an independent troncmaster like Buzzacott remains in place and that we can continue to secure for our clients National Insurance exemption, thus maximising the actual amount of tips our tronc members receive and, at the same time, save our clients’ money. Hospitality businesses need to urgently review their current tipping practices to ensure they will be compliant and seek specialist advice as appropriate.”

Almost every hospitality business will be affected by the new Employment (Allocation of Tips) Bill should it become law. It will improve transparency; customers can be confident tips do in fact go to the workers and employers are being fair with their employees.

Mayur Shah – Head of Payroll at Paperchase Accountancy concludes:

“The current Bill makes provision for Ministers to introduce a Statutory Code of Practice regarding tipping, subject to consultation with ACAS and subject to confirmation from the Houses of Parliament. The Code will set out the principles of what is considered ‘fair’ and provide examples, but to date, that Code has yet to be drafted. The current Bill is silent on how tronc systems should be run and managed day-to-day and it is expected that any guidance or changes regarding this will be contained within the subsequent Code of Practice.”

Paperchase will continue to provide further updates as the Bill continues to make its way through Parliament, and after the Parliamentary recess for the summer, the ‘Allocation of Tips’ Bill may well gain some momentum.

Author: Mayur Shah – Head of Payroll – Paperchase Accountancy
E: [email protected] T: +44 (0) 20 86337812 Ext 2101