Fourth’s Top Takeaways from The Caterer Tipping and Payments Summit
By The Employment (Allocation of Tips) Act 2023 comes into force July 1st. Yesterday, The Caterer invited experts from across the hospitality industry to discuss the new legislation and what it means in practice.
As legal expert Martin Pratt of RWK Goodman quickly pointed out, there are two aspects to the legislation that operators need to be aware of. The Act itself, passed last year, and the code of practice, which provides clarity on how to comply with the Act.
He likened the code of practice to the highway code; a breach of the code doesn’t automatically mean non-compliance, but it’s a good indication that operators may be in breach of the legislation.
The expectation was that the code would be published on Monday, but at time of writing it was delayed and still in draft form. John Guthrie, employment policy advisor for UK Hospitality, cautioned that all advice given during the Summit was based on the draft code of practice, which he thought unlikely to change materially once published. He highlighted that we shouldn’t expect the code to change the fundamental wording of the Act, but he hoped that it may introduce some nuances to the wording that will provide additional guidance to operators.
What is the new tipping legislation?
The Employment (Allocation of Tips) Act 2023 is designed to make the distribution of tronc payments fair and transparent. It defines tronc, or tips, as “any voluntary gratuity given by a customer that the employer receives or has significant influence over the distribution of to their workers, agency staff or employees.”
Essentially, the legislation codifies many common practices around tipping distribution for the first time, creating additional responsibilities for employers around policies, distribution, and record keeping.
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Tipping policy and compliance
Fourth’s Alison Barlow was joined by Peter Davis from WMT TroncMaster Services and Chantelle Nicholson, chef owner of Apricity and All’s Well for a panel aimed at answering questions on tipping policy and addressing the industry’s main concerns around the new legislation.
Fairness and transparency
Ensuring fairness and transparency is the governing principle behind the incoming legislation, yet our panel was quick to point out instances in which The Employment (Allocation of Tips) Act 2023 makes distribution tricky.
Chaired by The Caterer’s James Stagg, seasonality quickly emerged as a key topic of concern for each of the panellists. Echoing the apprehension expressed by John Guthrie earlier in the session, the experts all highlighted that the new requirements mean tips and gratuities must be paid no later than the calendar month after they are received.
Alison explained that the current practice is to hold a percentage of gratuities received during November and December to top up shortfalls in quieter months. Under the new legislation, operators will no longer be able to do this. Chantelle has concerns that this could disadvantage full-time workers, since they would be required to split gratuities from peak trading periods with seasonal staff while receiving reduced payments when trade is down.
Overall, do our panel of experts think that the new Act enhances fairness and transparency? Chantelle is on the fence, she believes that the inability to smooth out distribution throughout the year could be challenging.
Peter echoed this sentiment, suggesting that the legislation has gone beyond the areas that staff were asking for and will be detrimental to some – namely full time staff and those working across more than one location.
One theme did come up a lot throughout the discussion – operators seeking to ensure transparency and fairness must consult their staff. Chantelle shared her experience of this process with her teams, who collectively agreed on distribution based on length of service, seniority and (to her surprise) performance.
Distribution
Distribution is a key factor codified in the Act, and Alison and Peter both highlighted the need to ensure that reasoning behind any distribution decision was documented in a tipping policy made freely available to all staff – including agency workers.
Peter also called attention to the inability to spread gratuities across sites. The new legislation prohibits the distribution of tips between multiple sites, meaning staff that work in smaller venues or those with high delivery trade will receive less tips than colleagues in venues that generate more tronc. For larger, multi-site operators, that could mean they need policies specific to each site if they have venues that generate radically different amounts of money.
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The timing requirement around distribution came up repeatedly since it poses multiple challenges. Not only does it mean tips can’t be held to smooth over shortfalls during quieter trading periods, but it presents additional administrative burdens for employers paying two or more weeks in arrears.
In these cases, operators will find that paying gratuities with normal payroll will put them in breach of new legislation, since payday could fall into the second month after tips were left. This could result in employers needing to operate a separate payroll system for service charges to ensure they’re paid on time and remain compliant.
Agency workers
For the first time, agency workers will have a right to receive gratuities. The draft code of conduct provides two means by which to facilitate these payments, although the panel all agreed that neither are ideal.
Currently, operators can either choose to pay agency workers’ tips through their own payroll – meaning they will need to onboard every agency worker – or they can forward tips to agencies to distribute. However, if agency partners fail to distribute gratuities in line with legislative requirements, employers themselves will be liable.
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Alison advised hospitality operators to contact their agency partners now and agree a policy between them for the distribution of gratuities ahead of July 1st. She expects the larger agencies to start doing this proactively once the code is published, since there is a very real risk that operators will use agency staff less as a result and opt instead for solutions such as shift pooling.
Record keeping and automation
Regardless of the size of a business, all of the experts featured in The Caterer’s Tipping and Payments Summit were unanimous in their assertions that the new tipping legislation will be a major change for hospitality operators. Even those currently paying 100% of their tips to staff will have additional obligations around formal written policies, staff rights, distribution and record keeping. John Guthrie says UK Hospitality estimates that the additional cost to employers could top £150m.
Preparing a Tipping Policy
Check out Fourth’s step by step guide on how to prepare a tipping policy.
Fourth’s HR and Payroll platform allows hospitality operators to automate tronc distribution in line with their policies, removing the administrative and cost burdens introduced by The Employment (Allocation of Tips) Act 2023 and providing reassurance that tips are being distributed fairly. To find out how Fourth can help your business to manage tronc beyond July 1st, book a call with our team today.
FAQs
What should a tipping policy include?
A tipping policy should detail the processes employers have in place to ensure tips are handled fairly and transparently. It must also name any tronc services employed, as well as the rules around allocation and how tips are distributed.
What deductions can be made from tronc payments?
As of July 1st, employers are no longer able to take administration or processing fees from tips, or use them to pay for tronc services (such as Troncmasters or supporting software). 100% of qualifying tips, gratuities and service charges must be distributed to workers in line with a venue’s stated tipping policy.
Can tronc be shared between workers at multiple sites? What if one site takes service charge but the other doesn’t?
The new legislation does not allow tips from multiple sites to be pooled and distributed to the wider staff, meaning those that work in smaller venues or sites with high delivery trade could receive less tips than colleagues in larger venues that generate more tips. For hospitality chains and large brands, if they have venues that generate different amounts of money they will need policies specific to each site.
Are agency workers entitled to the same amount of tips as employees?
Employers can allocate different proportions of tips to employees based on a number of factors, providing all decisions around allocation and how tips are proportionally distributed are aligned with the considerations of the Act and documented in the tipping policy. For example, agency staff could receive a proportionally smaller amount of tips than employees if their base pay is higher, but this justification would need to be clearly documented and freely available to all employees.
Who is liable if agency partners or tronc masters fail to comply with the new legislation?
Leaving gratuity distribution to an agency partner or using a tronc operator does not remove the employer’s obligation to ensure tips are distributed fairly, transparently and on time. If employers believe third parties are in breach of tipping legislation, they are obligated to step in.
Have any unanswered questions?
Disclaimer:
This resource is not a substitute for legal advice. This material is for informational purposes only, and not for the purpose of establishing a lawyer-client relationship.