10 Best Tipping Practices Inspired by the UK’s Allocation of Tips Act

New legislation forces the United Kingdom to ensure fair, accurate, and timely tip payments in the hospitality sector.

It’s no secret that tipping makes up a significant portion of many workers’ earnings. Over the years, the practice has evolved from a casual gesture of appreciation in the service industry to a critical aspect of wage structures, forcing a closer look at how restaurants are dolling out tips in digital and electronic form.

The recent introduction of the Employment (Allocation of Tips) Act 2023 in the U.K., set to be enacted on October 1, 2024, underscores the shifting dynamics of tipping and sets a new standard for transparency in the industry.

Tipping matters not only to the employees receiving it — most guests are also concerned about where tips end up. More than 8 in 10 guests consider “fair tip distribution” an important issue during their dining or service experience.

From small gesture to income cornerstone

Historically, tipping began as a voluntary gesture of gratitude from customers to service staff. Wealthy Europeans started giving out extra money for services during the Middle Ages, and Americans later adopted the practice in the 1800s.

In its beginnings, tipping was intended to reward good service and was largely unregulated, leaving a wide range of practices – and expectations. Over time, workers in the hospitality sector have come to rely on tips as a significant part of their income. This transition has sparked discussions about how tips are distributed and managed.

Tipping is not only a topic for customers who have the option to tip at nearly every place they shop, but it also highlights the wage disparities of service workers. Employers rely on customers to fill the wage gap, and service industry customers and employees pay the price.

The rise of cashless payments, automatic service charges, and a volatile economy filled with price hikes galore have further complicated the tipping landscape, inspiring a reassessment of how gratuities are handled and distributed.

Required in the U.K., encouraged in the U.S.

Employers play a crucial role in managing tips. Leadership needs their staff to distribute tips fairly. New legislation in the U.K. acknowledges that this process needs more regulation.

The Employment (Allocation of Tips) Act 2023 represents a significant shift in how tips are managed and distributed in the U.K. Set to effect on October 1, 2024, the Act introduces several key provisions designed to enhance fairness and transparency in allocating gratuities.

Below are 10 best practices inspired by a rundown of the new tipping requirements for U.K. employers.

1. Employees should receive the entirety of the tip. The Act mandates that 100% of gratuities left by customers must be passed on to workers, aside from mandatory tax deductions. This provision ensures that the total amount of tips received goes directly to the intended recipients without any deductions for administrative costs.
2. Tips should not cover administrative costs. Come October, U.K. service establishments will be prohibited from making deductions to cover card fees or payroll expenses. The Act ensures that workers receive the total value of the customers’ tips. Gratuities should benefit the staff, not offset operational costs.
3. Allocate tips for location-specific service. Tips collected at or attributable to a specific venue must be allocated among the workers at that same venue. This ensures that gratuities are distributed among those who contribute to the service experience at a particular location. Chains and franchises, take heed – mainly if your employees cover shifts at multiple stores.
4. Include non-customer-facing workers. The Act recognizes the contributions of “back of house” staff and those behind the scenes who make exceptional service come to life. These workers should receive a share of gratuities if they’re not already. By acknowledging the role of all staff members, your business will transform into a team.
5. Part-time and full-time employees have equal rights to tips. Gratuities should be distributed relatively among workers based on length of shifts and service, not employment status. The Act grants freelance workers similar rights to full-time or salary employees regarding tip distribution.
6. Deliver tips within a reasonable amount of time. In the U.K., gratuities must now be paid to workers by the end of the month once the employer receives the tip. This timely distribution window helps workers manage their finances and ensures that they receive their earnings promptly.
7. Employers should fight to fix errors. While not legally required in the U.K., employers are encouraged to follow up and challenge employees’ issues with their tipped wages. It’s always a good idea to display a commitment to ethical practices.
8. Maintain detailed records of collections and payments. Records prove more challenging for cash payments, especially when handed to employees directly. But keeping track of all tip transactions and goods delivered addresses those tips that go through processing before reaching the hands of those who earned them.
9. Don’t reduce pay in exchange for tips. The Act prohibits negotiating with workers to lower wages in exchange for a more significant share of tips. Service industry professionals already work for a reduced rate to compensate for tip income. However, the fluctuation in this side of pay can pose significant financial challenges for employees. Maintain a consistent and fair salary for workers, regardless of their share of gratuities.
10. Be transparent with the tipping policy. The U.K. government has committed to providing a new code of practice to support the Act’s implementation. One of its main points is for employers to share their existing policies and any upcoming changes to all employees receiving tips. In the U.S., transparency and communication can also go a long way in building trust between employer and employee.

As the industry adapts to these new regulations, employers must embrace best tipping practices, fostering a more equitable environment for all employees.

If you want to revamp your tipping policy or relay to your staff that their financial well-being is at the top of their minds, be transparent and fair and pay them on time. Regulating your practices now will make it easier when the time comes for new U.S. legislation that will follow in the U.K.’s footsteps.