Service Charge UK Law: Can Employers Keep Tips?

Service charge UK law, can employers keep tips? Tipping in the UK made the headlines when Labour announced that an employer withholding tips intended for staff would be illegal.

Former Labour leader Jeremy Corbyn once said:

“Tips should be kept by the staff that earn them, not employers. It’s not fair or right that in businesses across the country, hardworking hospitality workers have had their tips pocketed by their bosses under the guise of bogus admin fees, or cover breakages, till shortages or customer walkouts”.

Transparency Under Service Charge UK Law

Transparency is becoming the focus of standard business practice (gender wage gap, for example), and employers must be aware of their responsibilities regarding tips, gratuities, and service charges.

A good start is the government’s ‘Code of Best Practice’, guidance that is not mandatory for businesses to follow but is sure to put them in good stead for any UK service charge disputes.

The guide attempts to set out the four principles of the Code of Best Practice and highlight ways businesses can make information available to consumers and workers.

Traditionally, tips, gratuities, and service charges are paid in one of three ways:

Cash is given at the end of a shift or from a customer.
Part of the pay packet that you receive.
Splitting tips among employees and pooling them is called a ‘Tronc’, and the person who then looks after it is called a ‘Troncmaster’.

Tipping, Troncs And Service Charges

Your employees should be fully informed of the distribution and breakdown of tips, gratuities and service charges, cover charges and the level and purpose of any deductions.

Additionally, your employees should be able to confidently explain the business’s tips and gratuities policy or know where to direct customers for more information without any risk of detriment.

Employers should give the information to their staff in the form of a written statement; this statement should include the following:

Exactly how tips are distributed, including whether this is done through tronc payments and who the troncmaster is.
If cash and card tips are treated differently.
How much might be deducted for administration, and what does this cover?
Any other potential deductions.
What happens during holidays, sick leave, parental leave and other forms of leave?

Lastly, employers must comply with national minimum wage legislation. Therefore, regardless of how they are paid, the gratuities for employees cannot be used to make up national minimum wage pay.

Employers Tips And Gratuities Policy

The potential fallout of being accused of mishandling staff earnings could be catastrophic to a small business. Therefore, it is not just your staff who should be well aware of your gratuities for employees policy but also your customers.

Employers should display their employee tips policy before the point of purchase relating to mandatory and discretionary charges.

Businesses should also have a process for handling customer requests about how and to whom all tips for employees are distributed, as well as the level and purpose of deductions.

Whether or not you agree that the Labour leader is right in demanding that businesses should not receive a percentage of the tips, it’s hard to argue that a clear, concise and transparent policy on gratuity for employees is essential to protect you as an employer from a potential claim.

Rebecca Young

Rebecca obtained her BA (Hons) degree from Manchester Metropolitan University and began her career in HR whilst working in the Private Healthcare Sector. It was during this time she went on to complete her Post Graduate Diploma in Human Resource Management at Manchester Metropolitan Business School and developed a very keen interest in employment law.

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Disclaimer

Service Charge UK Law FAQs

What forms a good tips and gratuities policy?

For an employer, your UK service charge policy must be appropriately communicated. The policy document should be readily accessible to all staff and the public. Service staff should be able to communicate the policy to customers requesting to know how tips are distributed. Finally, all staff should receive a full breakdown of how tips were distributed, along with any deductions and administration costs.

Why is there an increased focus on tips for employees?

Service staff have complained about the law on service charge distribution and customer tipping in UK establishments. These complaints have centred on employers not passing on tips for employees, which has created dissatisfaction in service-related industries. Also, businesses that do not pass on tips, gratuities, and service charges are seen as having an advantage over companies that pass on employee tips.

When is the new tipping law coming in?

The amendments to service charge UK law are being incorporated into the Employment (Allocation of Tips) Act 2023, which underwent public consultation in 2016. These regulation changes are scheduled to finally be implemented on July 1st 2024, in England, Scotland, and Wales.