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New law to ensure staff receive 100% of tips

The much-anticipated changes to the law on tips and gratuities is continuing its progress through parliament.

Affecting a range of industries, the most obvious one being hospitality and leisure, it is something that businesses should prepare for sooner rather than later.

We are talking about The Employment (Allocation of Tips) Act 2022 which will apply in England, Scotland and Wales but not Northern Ireland. It will create a legal obligation on employers to allocate all qualifying tips, gratuities and service charges to workers without any deductions. Workers should receive these payments no later than the end of the month, following the month in which the payment was made by the customer.

We’re sure many businesses already give staff the entirety of their tips. Under current law cash tips are legally the property of staff. However, businesses who receive tips by card or apply service charges have the choice of whether to keep these or pass them on to workers.

The Bill will also see other changes, including the requirement for employers to:

  • ensure the distribution of tips between workers is fair
  • have a written policy on tipping
  • maintain written records of tips received and allocated – workers will also have certain rights of access to these records.

Once the new legislation is passed, should employers break the rules they could be taken to an employment tribunal, possibly incurring fines and being made to pay compensation.

Employers can use a tronc scheme to equally distribute staff tips, gratuities, and service charges. If you do use a tronc, the person who operates the tronc will be called a troncmaster. The troncmaster is responsible both for the equal sharing of tips and ensuring the correct information is filed to HMRC.

An employer can be the troncmaster for their own business. But tronc payments do create additional administration and complexity.  Therefore many businesses choose to have an independent troncmaster who can ensure compliance with corporation tax, income tax and other tax requirements.

Other benefits of an independent troncmaster include:

  • better employee morale – the scheme is seen as genuinely independent from the employer and run entirely to ensure tips are correctly managed
  • it’s more tax effective – payments can be exempt from National Insurance Contributions if certain conditions are met
  • peace of mind – a qualified payroll expert can ensure your business will be compliant with the pending Employment (Allocation of Tips) Bill.

Employers operating a tronc system will be least impacted by the new Bill from both a tax and administration point of view. Expectations are that the new Bill could become law for the 2023/24 tax year so we would advise any business affected to review their policies and practices on tipping sooner rather than later.

We have an expert payroll team should you want any further guidance.  Do get in touch if you have any questions, we’re here to help.

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