Navigating the Impact of the Retention of Tips Act

In the complex landscape of business regulations and legislation, it’s important for companies to stay updated on policy changes that may affect their operations. The Retention of Tips Act is one such piece of legislation that’s set to cause significant changes in the hospitality sector. At Circle Insurance, we understand that it’s crucial for businesses to navigate these changes efficiently, especially considering the risk implications and the need for a responsive insurance strategy.

Understanding the Retention of Tips Act

The Retention of Tips Act was created to ensure that all gratuities, or ‘tips’, given by customers are received by the employees as an extra reward for their service. In effect, this new law makes it illegal for employers to withhold tips from their workers.

While the act seeks to ensure fairness for employees, it can bring considerable changes for businesses where tipping is common.

The Impact on Business

The main issue for businesses arises from the fact that any tips given via card payment – the most common method in this digital age – will now need to be processed separately from standard revenue. For businesses that have historically used tips to offset wages, this could mean significant changes in their payroll and accounting systems.

To comply with the law, businesses are now required to clearly display their tipping policy so that both employees and customers understand who will receive the tips. Failure to adhere to this could result in fines and penalties.

Insurance Needs

Given the administrative and operational changes that might be required for businesses to comply with this Act, there’s a risk of increased errors and omissions in processing payments. These errors could lead to disputes with employees, potential litigation, and subsequent reputational damage.

We recommend reviewing your current liability insurance policy to ensure that it covers the potential risks associated with the implementation of the Retention of Tips Act. Employers’ liability insurance and public liability insurance are particularly critical in this context.

Handling and Enforcement of Tips

The Retention of Tips Act ensures tips are received by employees and requires employers to allocate tips and related payments by the end of the subsequent month after receiving them. Non-compliance can lead to complaints being filed to an employment tribunal, with a longer time limit of twelve months, rather than the usual three.

The tribunal can order employers to deal with tips appropriately under the Act and even recommend alterations to the allocation of tips, potentially affecting not only the complainant but other employees as well. Failure to comply could result in a fine up to £5,000. Recommendations aren’t binding but can be used as evidence in proceedings.

Record Keeping and Written Policy

Employers must maintain a written policy outlining their procedures for handling tips and make it available to all workers. Any amendments to this policy must also be freely available. This policy should detail whether the employer encourages customers to pay tips, and how tips are allocated among workers.

Employers need to create and maintain a record for three years, detailing how tips are handled. This record should include the total tips, the portion allocated to workers, and the quantity allocated by an independent tronc operator. Workers can request access to these records, provided they adhere to certain conditions.

Failure to uphold the record-keeping and policy writing requirements can result in a worker filing a complaint to a tribunal. The tribunal may order compliance and a fine of up to £5,000 if the complaint is proven.

Employer Preparations

Employers need to ensure the fair allocation of tips and service charges among workers. Although the Act isn’t likely to be enforced until 2024, businesses should establish necessary policies and procedures in advance to smooth out issues before legal compliance is essential. Consulting with a legal expert can aid in ensuring full compliance with the Act’s requirements.

For any queries relating to this issue – or any other issue(s) discussed in our blogs – please get in touch with us at: insurance@circlegroup.co.uk.

Original Case Study, accredited to RRADAR.