COMPLIANCE
Katie Linstead, senior manager, product management, Iris Software Group, provides us with a reminder of some of the considerations for payroll in relation to the Employment (Allocation of Tips) Act 2023, due to come in from 1 July 2024 What will the looming tipping legislation mean for payroll?
P ayroll professionals and bureau service providers are no strangers to the ever-changing world of red tape and legislation. The Employment (Allocation of Tips) Act 2023, which says that 100% of tips must be passed on to staff, is a big one by anyone’s standards. It’s expected to cause a meteoric shakeup in the hospitality sector and has significant implications for those processing payroll for restaurants, hotels, bars and clubs. The Bill itself, and its associated Code of Practice, will provide protection for employees and create fairness around tipping practices. So much so that the government claims £200 million extra a year will go to hospitality workers who would otherwise lose out to employer deductions. It has, however, caused a lot of confusion among businesses about how to remain compliant without completely disrupting company payroll process. We work with over 600 hospitality businesses, from small independent outfits to national multi-site chains, and have received a significant number of queries about what this will mean for payroll. Why did we need a new approach to the allocation of tips? The Employment (Allocation of Tips) Act 2023 came in response to a campaign by trade unions and workers. They argued
some businesses were taking a substantial portion of the tips or they were distributing them unfairly. Some staff said they were receiving none of the tips and service charges customers paid. According to previous legislation, tips paid by cash were considered the property of the employee (and will continue to be treated as such). Tips paid by card and other service charges were instead the property of the employer who could decide how to share them, with only a voluntary Code of Practice urging employers to share these monies fairly with employees. Ambiguity existed and some employers would take a percentage of the tips received and distribute them among non-serving staff or keep them as revenue. In some cases, this occurred simply because there were no clear guidelines for employers on how to handle tips, which led to confusion and, perhaps, some unscrupulous practices. There were also inequalities in the amount of tips employees received, which led to further dissatisfaction. This will now change, and employers will be obligated to pay out all qualifying tips and service charges to employees, with a fair methodology, a transparent policy and within a set timescale. The main aim of the new legislation is to ensure employees who receive tips get
to keep them in full, and that employers can no longer use tips to offset staff pay costs or bolster profits. It was already illegal to use tips to make up national minimum wage, but some businesses may have been using it to offset salaries above this rate, without employees being aware this was happening. The new legislation is expected to provide greater transparency in the handling of tips and ensure workers receive a fairer share. For clarity, qualifying tips include gratuities and service charges paid to an employer via card, electronically, via apps or any cash that’s banked by the business disregarding any deductions. This includes mandatory service charges. It doesn’t include when a customer gives an employee cash directly. What does the new legislation mandate? In line with the new legislation, employers will be required to follow specific rules when handling tips. These rules include the requirement to: l clearly communicate their tips policy to employees and agency workers l pass on the total amount of tips received to the employee without any deductions other than statutory deductions, like tax l pay all qualifying tips out to employees by the end of the month following the
| Professional in Payroll, Pensions and Reward | April 2024 | Issue 99 20
Made with FlippingBook - Online magazine maker