The legislation, which received Royal Assent last spring, includes the handling and distribution of customer tips, meaning there will be a legal obligation for hospitality firms to pass on 100% of gratuities received from customers without deductions.
It also means tips will have to be distributed by the end of the month after they were received.
Davies has urged pubs not to ignore the new laws, even if they already give tips to staff.
The legislation is due to come into effect on 1 July 2024, but this could change if the Prime Minister calls for a spring election and parliament gets dissolved, as in this case, they won’t be able to approve the final code of practice.
In this case, the legislation won’t come into force until post-election. But it had the backing of the Labour Party when it went through parliament, so even if it is delayed, Davies thinks it will still come into force at some point this year, regardless of the party in power.
The Government published the draft of the Code of Practice just before Christmas, and there has been a consultation on the new code which ended last week.
It is expected that Government will respond to the consultation shortly after Easter, then it will ask parliament to approve the final version of the code.
At the moment there is no legislation around tipping. Davies said: “While most businesses do already give the money to their staff, the Government’s view is that there have been a persistent small minority who haven’t.
“They believe this legislation will not only deliver greater fairness to staff, but put businesses on a level playing field as well. That’s to be welcomed.
“It should also give consumers more confidence. This means when they tip or when they pay a service charge, they don’t have that awkward question anymore, ‘does it actually go to staff?’, because the law will say it must.”
The law says the money must be paid to employees by the end of the following month.
What does this mean for pubs?
Operators with multiple businesses can’t take the money generated in one trading site and give it to staff who work at a different site. They have to pay the tips to the staff in the venue the money was generated.
But the law does take into account people who work in situations like dark kitchens, central production units and head office, who may be entitled to a fair share of the tips.
The law states the company must deal with these cases in a way that is fair. “That’s a subjective word,” said Davies. “The code of practice that came out before Christmas gave some guidelines to operators, and it says that, in order to decide, an operators needs to base [its decision] on factors that are ‘clear, objective, reasonable and people have to understand what they are.’
“So giving staff an equal share is one way of doing it, but it’s not the only way. The code says, for example, you can give different shares to people based on the type of job they do in which department, the seniority, the level of responsibility, and maybe how long they’ve been at the business.
“But you must have a proper, valid reason for doing this, and your team should know what it is.
“So if I work in a hospitality business, I should understand what I’m going to get, and what factors that impact the decision of what I’m going to get, and why that might change.”
A tronc system is one way of handling this. Davies said: “The Government has said it believes a well-managed tronc system represents good practice and is a fair way of dealing with things. It’s not forcing everyone to go down that road, but what it is saying is if you have a tronc system that’s run in line with the code of practice, what the law will say is that’s fair and you, the business, have met your obligation to deal with things in a fair way.”
Staff should be given a copy of the written policy that sets out the type of money generated at the business, and how the business makes sure it meets the statutory obligations.
Team members are entitled to know how much money the business generates in tips. For instance, an employee can go to their employer in August and say ‘I want to know how much money we generated here in this business in July’, and business will be obliged to tell them as part of transparency,” explained Davies.
But he makes clear that this doesn’t mean somebody has the right to know the amount of money another employee gets, as this is personal data covered by the Data Protection Act.
Ensuring fairness
Davies said: “Even if you say, ‘we’ve always given the money to our staff so we’re okay,’ actually, you may have further obligations.
“It’s really important businesses understand that, because if a worker feels they haven’t had what is due, or that they’ve not been treated fairly, or they’ve not had the information they are entitled to have, then they have a right of redress through an employment tribunal.”
If something goes to an employment tribunal, the operator can be fined up to £5000 per worker, so it could very quickly mount up, added Davies.
He said: “If a tribunal was to say ‘we agree that this business has not behaved thoroughly’, then what it can do is give an order for the business to recompense the worker for the amount they’ve maybe lost, and to give the business a recommendation on the changes they need to make going forward to ensure it’s fair.”
According to Davies, the biggest pitfall operators could fall into is dealing with something in a way that is at variance with the legislation.
He gave an example: “A small business might say ‘we don’t generate huge amounts of tips, so we’ll pay it out once a quarter or save it up and pay it out at Christmas. Even if the team are happy with that, that’s not allowed under the legislation.”
Agency workers must be considered for a share of tips on the same basis as a directly employed person under the new law.
This creates practical challenges for operators, in terms of paying tips to agency workers who weren’t their staff or on their payroll, said Davies.
Part of the consultation was businesses urging Government to come up with a more practical and workable solution.
But pubs using agency labour “really need to pay attention”, said Davies.
