Tipping Act Code of Practice to bring fairness to employees

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June 03, 2024

Whenever you leave a tip in a restaurant or a hairdressing salon, for example, you would hope that the tip money you left will go directly to the person who provided you the service you are tipping for. But for many restaurants and other industries, that hasn’t always been the case.

So now, the Government is working on draft legislation known as the ‘Tipping Act’ to bring fairness to sectors where tipping is common, to ensure the people who were being paid the tip get it.

What is currently happening?

In some restaurants, the tips paid by card especially, and sometimes those paid in cash, are controlled by the owner. This means the tips may not reach the workers as intended by the people who left them. The Act intends to change this, by ensuring all employers abide by a Code of Practice which will dictate how the tips should be handled.

The list below includes some of the factors considered by employers, but this isn’t an exhaustive list:

  1. Type of role or work, for example, distribution between front of house and back-room workers.
  2. Basic pay (and how workers are engaged).
  3. Individual and/or team performance.
  4. Seniority or level of responsibility.
  5. Length of time served with the employer.
  6. Customer intention.

Source: Gov.uk

There are various elements to the consultation, and any company that deals with customer tips should be considering what might be expected of them.

Are tips taxable?

For those people who begin getting tips where they weren’t before, there will be a tax implication to consider. All tips are subject to tax, even if they are paid to you in cash. So, you will need to declare these tips to HMRC and pay any money that is due.

Remember, if the tip has been paid as an additional amount on a card, for example, there will also be a paper trail that will allow HMRC to investigate how much money has been tipped within each business. So, if you aren’t sure what to do, you are best to seek advice.

We can help you meet your obligations

If you are going to be dealing with tips and the tax implications of them, whether as an employer or employee, then please ask us for advice and we can explain what you need to know.


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