The Employment (Allocation of Tips) Act 2023 (the Act) received Royal Assent on 2 May 2023 which means employers will – once accompanying legislation is passed - be legally obligated to ensure that their workers are allocated 100% of any tips or service charges (minus tax or National Insurance deductions) received. What does this new Act mean for employers and their workers alike? Helen Goss, Partner and Emma O’Connor, Legal Director explain.
There has been much debate in recent years about the issue of “tips” – what to do with them, who owns them, and how should they be split between staff? The Act intends to prohibit the practice of businesses retaining tips paid by credit card instead of passing them on. Many hospitality businesses have already adopted the practice of distributing all tips and service charges to staff so this legislation is for those who retain some element of service charges in the business.
Customers generally feel they have little choice but to pay service charges added to their bills, so knowing that this payment is going to all the staff is a good thing, but perhaps difficult for some businesses to administer. This new Act seeks to ensure there is fairness in the allocation of service charges and electronic tips – as well as making sure that income tax and National Insurance is collected at the same time.
Which “tips” are covered?
Tips which are added to a customer’s bill are now covered, essentially money which the business controls. Cash tips...
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