Impact of tipping laws on hospitality industry - Overview

Effective from October 2023, the Employment (Tips Allocation) Act 2023 mandates that hospitality establishments evenly distribute all gratuities and service charges among their employees.

This new legislation has been introduced with the intention of ensuring fair distribution of tips and promoting transparency in the industry.

However, a report by Three Rocks suggests that as many as 72% of hospitality businesses may struggle to comply with these changes.

The research indicates that 63% of respondents currently take a percentage of tips from staff, with 29% using the funds for covering costs and 28% retaining a profitable share.

Under the new regulations, businesses will have to absorb these costs themselves, potentially leading to increased prices for customers or reduced profit margins.

Tipping Point: How new legislation will impact hospitality

Three Rocks

The report further reveals that only 42% of hospitality workers are aware of their employer's tipping procedures and nearly half (44%) favor an alternative system known as the Tipping Standard Practice.

According to Three Rocks, this practice involves customers paying a voluntary percentage on their bill, with the business retaining a small fee for administration.

The findings from Three Rocks arrive at a critical juncture for the UK hospitality sector, as it grapples with numerous challenges such as a labor shortage and escalating costs due to inflation. The report's revelation of widespread tipping practices that may no longer be permissible under the Employment (Allocation of Tips) Act 2023 adds another layer of complexity to an already intricate situation.

The introduction of the Employment (Allocation of Tips) Act 2023 signifies a significant shift in the hospitality industry's tipping practices, with far-reaching consequences for businesses and their staff. This complex transformation may bring about various adjustments to business models, labor relations, and customer experiences.