Today, a new tipping law comes into force across the UK, designed to boost the earnings of nearly two million workers in the hospitality and service sectors. This law, which makes keeping tips from workers illegal and has been in the works for over eight years, aims to ensure that businesses such as restaurants, pubs, cafes, hotels, hairdressers, and taxi firms can no longer withhold tips or service charges from their employees. Whether the payment is made by cash or card, employers must now ensure that tips go directly to their staff.
Boost for Workers, But Businesses May Struggle
The Government’s intention behind the legislation is to ensure fairer compensation for workers, many of whom have relied on tips as a vital component of their income. The new regulation prevents businesses from using tips to subsidise wages or cover other expenses, a practice that has previously left workers short-changed.
Kate Nicholls, CEO of UK Hospitality, explained that while the sector has been preparing for this shift, there are concerns about the ripple effects on the broader industry. “Businesses have been gradually getting ready for this and are working towards adopting a best practice code,” she said. However, she acknowledged that some organisations could face challenges in adapting, particularly in managing their already tight margins.
Saxon Moseley, Head of Leisure and Hospitality at consultancy RSMUK.COM, echoed this sentiment. He warned that some businesses, especially those that have relied heavily on service charges to support their wage bill, may be hit hard. “In that scenario, margins will be impacted, in some cases fairly drastically. Employers will still need to pay their staff but can no longer depend on the additional income from service charges,” Moseley remarked.
A Delicate Balancing Act
The new law also places the onus on employers to devise a fair and transparent system for distributing tips. Michael Powner, an employment partner at Charles Russell Speechlys, pointed out the difficulties that some businesses may encounter in meeting these requirements. “Employers need to ensure that what is agreed is ‘fair’ and that there is rational reasoning in place, while avoiding any potentially discriminatory rules,” Powner explained. He stressed the importance of careful implementation, given the sensitive nature of wage-related decisions in the workplace.
For workers, particularly those in restaurants and pubs, the new law promises a significant improvement in income. The legislation aims to address long-standing concerns in the hospitality workers sector, where many workers have faced uncertainty over the distribution of tips. With the law now enforced, the Government expects this change to provide a more equitable system, benefiting workers directly.
Industry Impact: Price Hikes on the Horizon?
While the law intends to benefit workers, there are concerns that customers might see higher prices as a result. Businesses already grappling with rising costs due to inflation may choose to pass on these additional expenses to consumers. Service-based hospitality sectors, from hairdressing to taxis, could see an increase in fees to maintain profitability under the new legislation.
This concern has sparked debates about the potential unintended consequences of the law. Some worry that while the law addresses fairness for workers, the financial burden on businesses and, by extension, consumers may create a new set of challenges. With the hospitality sector already reeling from the economic impact of the pandemic, higher prices may further complicate recovery efforts.
The Workers Union Says…
“As the new tipping law comes into effect, its long-term consequences remain uncertain. While it promises to provide significant benefits to workers, the potential for increased prices could affect both businesses and consumers. The hospitality sector will need to strike a careful balance between adhering to the law and maintaining profitability in an already competitive landscape. As businesses adjust to the new requirements, the next few months will be pivotal in determining whether this change brings the desired outcomes without unintended financial pressures.”
