Tipping laws: Only 28% of operators currently compliant with upcoming changes

Hospitality businesses are facing significant costs of up to £360,000 to ensure they are compliant with the upcoming tipping legislation which come into force from 1 October.

Under the Employment (Allocation of Tips) Act 2023 operators will be legally required to ensure all tips go to staff, while also having transparent processes in place to ensure the money is distributed fairly and promptly.

But these changes will come at significant cost to the sector, according to a report commissioned by hospitality software provider Three Rocks.

The survey of 1,000 hospitality businesses across the UK concluded that 83% of respondents were expecting to incur costs of at least £12,000 a year to comply with the new legislation, while 18% claimed their costs could increase by between £60,000 and £360,000 a year.

The ‘Tipping Point: How new legislation will impact hospitality’ report revealed that only 28% of operators were currently compliant with the changes, with 63% of hospitality businesses currently taking a percentage of tips from workers.  

Of those taking deductions from tips, 29% used those tips to cover costs such as processing fees, which businesses will have to cover under the new rules, while 28% took a profitable share of tips, which will be outlawed from October.

Scott Muncaster, founder and managing director of Three Rocks said: “The UK hospitality industry has been under immense pressure in the last few years. Beginning with the pandemic, then one of the biggest labour and skills shortages in decades, and now the cost-of-living crisis, operators need all the help they can get. This legislation, although introduced with good intentions, could push many businesses to breaking point as our research shows.

“The reality is that increasing costs by tens of thousands of pounds a month isn’t viable for many in the current climate.

“Tipping has long been a sticking point for customers, staff and businesses, with many not knowing what to expect, what to give, or how to spread tips out among employees. The research shows that clarity and transparency is needed to help all three parties find a standardised process for tipping.”

Nearly half (44%) of operators and 59% of hospitality workers surveyed said they were in favour of a Tipping Standard Practice as an alternative system to the new Act.

The reported also surveyed 500 hospitality workers and concluded that only 42% have been told about their employer’s tipping procedures. And more than a third (37%) of those surveyed felt they should get more tips.