Tipping Point: How will new government legislation impact businesses, customers and staff?

Late last year we caught wind that a new piece of government legislation, called the Employment (Allocation of Tips) Act 2023, set to be introduced in 2024. This piece of legislation, as it alludes to in the name, involves the allocation of tips between hospitality businesses and their staff. The major change being that 100% of gratuities and tips would now need to go to staff, with the business unable to take any cut apart from standard-rate tax deductions. The changes will also make it mandatory for all hospitality businesses to have a written policy accessible to staff on how tips are dealt with at their place of work.

As a business which operates within the hospitality industry, working with some of the UK’s biggest names in the sector, we decided to find out a bit more about how this would impact operators, staff and even customers.

To do this, we commissioned the help of a research agency to poll 1,000 hospitality businesses, 1,000 customers and 500 staff in the UK to reveal how the Act would affect the UK sector, and how shifts in tipping culture are leading to a more Americanised style of tipping in the UK. The study included UK hospitality businesses of all sizes, from independent operators to national restaurant, pub and bar chains.

So, what did we uncover?

We found that nearly a fifth of hospitality businesses, equivalent to 25,740 operators across the UK, could see their costs increase by between £60,000 to £360,000 a year due to new legislation, while just 28% of hospitality companies are currently compliant with the new Act. This means that, as of June 2024, the equivalent of more than 90,000 businesses needed to change the way in which they operate*.

The majority, two thirds (63%) of businesses, currently take a percentage of tips from employees. 29% of those use these tips to cover costs such as processing fees, costs the business will now have to cover under the new Act, while over a quarter (28%) take a profitable share of the tips, money they will be unable to claim from October.

Tipping – A better way?

We also wanted to learn more about how tipping processes in the UK are affecting hospitality staff. So, we spoke to 500 staff at restaurants, bars and pubs, and uncovered that 42% of hospitality workers have never been told about how tips are distributed to them, which equates to 756,000 employees across the UK*, based on the latest government figures. When asked whether they were happy with how tips are distributed to staff, more than a third (37%) said they were unsure but felt they should get more tips.

We also found that there could be a better and fairer alternative tipping process to the Employment (Allocation of Tips) Act 2023. Nearly half (44%) of operators would support the creation of a Tipping Standard Practice, which would consist of an official tip amount implemented ‘across the board’ for customers and a standard process for businesses to distribute tips to staff, offering transparency to all parties.

59% of staff support the concept, with 27% saying it would make financial planning easier and a further fifth saying it would be a fairer system for everyone. An overwhelming 73% of the 1,000 customers polled agreed it was a good idea.

Shifts in British Tipping Culture

We also wanted to learn more about the current tipping habits in the UK, and how tipping behaviour has shifted in recent years. We uncovered that nearly three quarters (74%) of UK hospitality companies either already, or plan to, add a service charge as standard for smaller tasks such as serving a pint, preparing a cocktail, checking people in or carrying luggage. Nearly 1 in 3 operators will add a service charge of between 5-10 per cent for such tasks, suggesting that the UK is heading towards an American-style service charge, where 20% is the standard gratuity for all types of service.

The British public also, quite surprisingly, support the Americanisation of tips, with 73% of customers agreeing that people should tip when buying drinks at a bar and over a third (34%) saying they should tip bar staff between 10-20% for making their drinks.

On the research, our founder and Managing Director, Scott Muncaster, said: “The UK hospitality industry has been under immense pressure in the last few years. Beginning with the pandemic, then one of the biggest labour and skills shortages in decades, and now the cost-of-living crisis, operators need all the help they can get. This legislation, although introduced with good intentions, could push many businesses to breaking point as our research shows. The reality is that increasing costs by tens of thousands of pounds a month isn’t viable for many in the current climate.

“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. The research shows that clarity and transparency is needed to help all three parties find a standardised process for tipping.”

The full results of our study can be found in our research whitepaper here.

If you’d like to learn more about our automated tipping systems, or to speak to one of the team about how three rocks® XMS can revolutionise the way in which your business operates, get in touch with us at [email protected]