So what does this mean for businesses?

The aim of the legislation is on fairness and transparency. Companies will no longer be able to keep any amount collated from tips, gratuities or service charges to one side; whether you used to cover administrative costs of a Tronc system, or pool tips to spend on the Staff Christmas party, companies and businesses must ensure any staff involved in contributing to customer satisfaction receives a share of the tips/gratuities/service charges paid by customers.

You can use a Tronc system to help manage this or use your own recording system for managing tips distribution. However, all employers have a responsibility to ensure that:

• There is a system in place where tips are distributed fairly and it is obvious to your employees how they will benefit from this system;
• Records of tips collected and who they were distributed to and how much was distributed must be kept for 3 years from the date of receiving the tip from the customer;
• Employees can view records at any time;
• Tips must be paid to the employees no later than one month after the month in which the tip was received;
• Tips are in addition to base-level wage, and must not be used to supplement wages up to the National Minimum Wage band.

How can you implement these changes in your company to ensure your business continues to run smoothly?

• Have a written policy that lays out the terms of how the business will manage and distribute tips, gratuities, service charges and troncs so it is easy for employees to understand what to expect regarding their share of tips. Businesses will be expected to share this policy with their employees.
• Cash tips must be collected and banked before being distributed through payroll and not distributed at the end of a shift or kept by an employee, to ensure there is a clear record of all tips paid by customers each day/night.
• Payslips should ideally show an additional line dedicated solely to tips a worker receives; or you can provide separate payslips for tips if they are paid at a different time of the month or at a different frequency to wages.

We already have a policy and use a Tronc-system – do I need to do anything?

Yes, you still need to check your current system will be compatible with the new legislation. If you have had a system in place for a while and haven’t checked it’s working successfully, now would be a good time to review and assess whether any changes are needed.

It is good practice to check this system is being well-managed by the Tronc-master – so it wouldn’t be unreasonable to carry out a spot check, and if there’s anything you’re unsure of, ask your Tronc-master

to explain it. You may find you need to remove an admin charge or offer additional training to the Tronc-master if you’re introducing something new.

You may also find your practices are up to date, but that the written policy doesn’t align with these. Ensure the policy reflects your good practices so that employees understand how they are benefiting from the tips system in place in your company.

The new legislation is due to come into effect by October. So why worry about it now?

There will be no transition period – we are currently in it. Once the legislation is in effect, all companies and businesses who receive any form of tips, gratuities and/or service charges from paying customers must be following good practices and have policy in place before 1st October 2024.

It is worth noting that this may take longer than anticipated to get into place – you may still need to:

• Appoint a Tronc-master – someone must decide on how the tips are shared amongst employees; and then you’ll need someone in charge of managing that system.
• Decide on the distribution criteria – will tips be shared out based on just hours worked, or will you use a points system that’s also influenced by performance, length of service, experience and job role?
• Set up the system with your payroll/accounts team – how will tips show on an employee’s payslip?
• Have a 1-month consultation period with employees as this is a major change to their contract so they have time to ask questions before it comes into effect in your business.
• Get the policy into writing.

What if businesses don’t implement this practice after 1st October 2024?

This is becoming law, and so by not implementing new policy, you are breaking the law and potentially committing theft [from employee’s earnings]. If you are investigated by HMRC and are found to have unfairly distributed tips, you are likely to receive a fine as well as have to pay for any undistributed tips to all employees, regardless of how many make a claim. An employee may raise a claim for unlawful deduction of wages if they believe 100% of the tips aren’t being distributed fairly; and/or a discrimination claim if they are not receiving a fair share of tips due to their age, race or sex.

Not sure where to start?

Contact We Do HR on 01325488425 or email us at admin@wedohr.co.uk. We can write your policy, tailoring it to your company needs, and advise you on the next steps to ensure your business is ready for 1st October. We can also provide letters for you to send to your employees to keep them informed of the changes, and write contracts with your new policy in mind.

Don’t know who can help you be free of your HR headaches? WEDO.