Data published in a report commissioned by hospitality technology specialist Three Rocks reveals that two thirds (63%) of businesses currently take a percentage of tips from employees; actions that will be unlawful once the Employment (Allocation of Tips) Act 2023 comes into force in October.
Of them, 29% use tips to cover costs such as processing fees, while over a quarter (28%) take a profitable share of the tips.
Three Rocks surveyed 1,000 hospitality businesses for the report, entitled Tipping Point: How new legislation will impact hospitality. The study included UK hospitality businesses of all sizes, from independent operators to national restaurant, pub and bar chains.
According to the research, 83% of businesses expect to incur costs of at least £12,000 a year to comply with the legislation, with nearly one in five (18%) claiming costs could increase by £60,000 to £360,000.
Breaking point
“This legislation, although introduced with good intentions, could push many businesses to breaking point,” says Scott Muncaster, founder and managing director of Three Rocks.
“The reality is that increasing costs by tens of thousands of pounds a month isn’t viable for many in the current climate.”
The Employment (Allocation of Tips) Act 2023, which is designed to ensure hospitality staff receive all money left to them in tips by customers, had originally been expected to come into force on 1 July.
However, the Government announced in April that the date had been pushed back three months to 1 October in order to allow businesses more time for implementation.
As well as businesses, Three Rocks also spoke to 1,000 hospitality customers and 500 staff when conducting research for the report.
Clarity and transparency
It uncovered that nearly half (42%) of hospitality workers in the UK have never been told about how tips are distributed to staff, with more than a third (37%) of staff saying they felt they should get more tips.
Nearly half (44%) of operators and 59% of hospitality workers would support the introduction of a Tipping Standard Practice, which would see an official tip amount implemented ‘across the board’ for customers and a standard process for businesses to distribute tips to staff, as an alternative to the new law, something that was also backed by 73% of customers polled.
“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,” Muncaster continues.
“The research shows that clarity and transparency is needed to help all three parties find a standardised process for tipping.”
A code of practise on the fair and transparent distribution of tips has been published by the Government to help businesses prepare for the introduction of the new legislation.
