When the Employment (Allocation of Tips) Act comes into force next year, it will be a big moment for the restaurant sector. There have been calls to introduce more robust laws related to gratuities and service charge stretching back to 2015 when, following revelations of several high-profile restaurant groups keeping all or part of the service charge added to bills, a Government consultation found that restaurant customers were overwhelmingly in favour of the tips they paid going to the people who served them. According to the Government, the overhaul of tipping practices is set to benefit more than two million UK workers across the hospitality, leisure and services sectors, with an estimated £200m a year going back into their pockets. Accompanying the act will be a new statutory Code of Practice, which is intended to provide businesses and staff with advice on how tips should be distributed when it is (hopefully) released later this year. To further explore this complex and fast-moving space, we caught up with tipping expert TiPJAR.
What should operators consider when choosing a tip management system?
Like so much – it’s a balance! Easy, transparent tipping, impact on staff earnings, and cost-effective. Staying in line with the law is also non-negotiable. There are a lot of options: service charges, or cash-equivalent; in-house management or outsourced external “manual” tronc accountants; and our favourite (yes, we’re biased) modern tech solutions, like TiPJAR. Perhaps the most important thing to remember is that no tipping solution is going to do the job of collecting tips for you. No system can magically make your customers want to tip – that’s always going be because of brilliant service and then whether they’re given the right opportunity to tip, at the right time, in the right way.
How are consumer attitudes towards tipping changing?
Oh, we absolutely love this question! There’s a common belief that Brits aren’t big on tipping, but the reality is, things are changing, and we’re seeing some fascinating trends. Firstly, there are generational differences. Our data reveals that three out of four Gen Z consumers are big fans of tipping. Perhaps this is because more of this generation that any other have experienced working in hospitality than ever before. Our data also highlights that most customers prefer having the freedom to tip as they wish, rather than having service charges automatically added. In fact, a significant 56% would rather have the choice, and only 21% feel a service charge is helpful. Customers are more likely to tip when they feel that teams have made their experience outstanding. Make it personal and engaging - and believe it or not the evidence says that servers who smile really do get more tips! Finally, according to our data, 89% of consumers think it’s important that tips are shared fairly, and only 44% believe that tips they leave actually make it to the hands of the staff. People tip more when they know where their tips are going.
Content provided by TiPJAR and Tevalis
TiPJAR is the UK’s leading cashless tipping and automated tronc platform that enables tips and service charges to be distributed fairly, transparently, and fully compliant with new legislation. Tevalis and TiPJAR work together to help businesses eliminate their administrative headaches with tronc distribution. Through our seamless integration, our powerful EPOS system totals daily tips, and the business then sends funds for TiPJAR to distribute through a secondary payroll. Businesses avoid paying national insurance on tips and employees receive 100% of what they’re owed, six times faster than with a traditional tronc system and all without any manual work. Empower your teams with TiPJAR and Tevalis: get in touch with our expert partnerships team here or with TiPJAR here.
Do diners prefer service charge being included or the option to add themselves?
According to our data, 56% of people definitely would rather not have service charges automatically included in their bill. Only 21% prefer a service charge. So the evidence is clear: the majority of people prefer the option to add the tip themselves. However, in these challenging times, it’s no surprise so many businesses rely on service charges to attract and retain staff. Hospitality business are tough, and not everyone has the luxury of being able to offer enhanced hourly rates. Service charge can be a real incentive for talented individuals to join and stay with their teams. Other operators are opting to pay their staff higher wages, perhaps increasing prices slightly in order to drop the service charge, then using optional tips as a simple, powerful motivation for the team delivering excellent service. We are seeing this becoming more common – with some operators finding this enhances the customer’s experience overall, through the best of both worlds: attracting great people to join the team, and then providing motivation to go above and beyond to deliver brilliant service.
What does the Employment (Allocation of Tips) Act mean for operators?
It’s about to shake things up in the hospitality world, and operators need to pay attention. The legislation aims to enforce transparency, fairness and makes that all tips and Service Charges are distributed to the hard-working employees that provided the service. The biggest changes are that tips and service charges now have to be distributed straight away, and only within the site that collected them. Operators must also clearly communicate their tip distribution policy to both employees and customers. The Act also now makes it illegal for employers to retain any portion of tips they collect for their teams. The bottom line is that all operators must now adopt fairer and more equitable methods of tip distribution. The upside is that getting it right and can lead to enhanced employee satisfaction, potentially reducing turnover rates and improving workplace morale. So although it is a big shake up, there is real potential for this to be a win for everyone – for businesses, their teams and customers. Fair, transparent tipping can create a more trusting work environment and strengthen those customer relationships.
How should operators be preparing for the Employment (Allocation of Tips) Act?
Take the time to understand the legislation! This includes the specific rules and regulations related to tip allocation, reporting, and transparency. Take a look at what you’ve been doing in the past. Evaluate your existing practices and try to identify areas where they may not align with the new legislation. Chat to an expert! Seek advice to ensure that your current policies and any intended changes comply with the new legislation. We’d highly recommend speaking to tips and tronc expert Andy Hamman at The Tronc Advisor as he’s the best in the biz and really helped us get ahead of the complexities of the new law. And communicate early! Make sure your team understand what the legislation means for them. Help them understand their new rights too - they’ll value your dedication to compliance and transparency and it will give them confidence you’re doing the right thing. Make sure managers and head office teams are well informed. This might include training on what is and isn’t allowed around tip distribution, what records they need to keep and what reporting they will need to do on how tips have been shared. Don’t forget to inform your customers about the changes in tipping practices, especially if it affects the tipping process. Clear and respectful communication with customers can help manage their expectations and build greater brand trust.
Tronc remains one of the most popular ways for operators to manage staff tips – why is that?
Good question! There’s loads of reasons really. The biggest one is that operating a Tronc system can result in significant National Insurance savings, which is a strong financial incentive for operators. By correctly structuring tip distribution through a Tronc and ensuring that the employer is not involved in the decisions about how tips are shared both employers and employees no longer have to pay National Insurance contributions on these amounts. A big saving for staff, and a substantial bottom line impact for the business. Tronc systems also help operators comply with the law, making it easier to navigate the legal requirements surrounding tips. They can also reduce the employer’s risk of legal disputes or audits, and when implemented well (and fairly) tronc systems foster employee satisfaction. Equally, it is true that historically Tronc systems have been a part of some businesses taking advantage of loopholes – be that disguising that some of the tips and service charges were being retained, using Tronc to top up salaries with “guaranteed amounts”, or even allocating Tronc to head office or off-site senior management. The new legislation specifically prohibits these practices – Service Charges and tips must go straight to the teams that earned them. Tronc really is good in the sense that everyone knows where they stand. I’m excited to see how the new laws are going to affect this in the coming months.
Do cashless tipping platforms over any benefits to staff that a tronc system does not?
It’s really down to what the business wants/needs. For our part, we offer both options. The core TiPJAR platform handles the distribution and you can plug in our SuperTronc module to distribute Tronc, or a range of cash-equivalent collection options, or both! The key difference is that tronc distributes tips that employers have collected, whereas the cash-equivalent tipping options ensure the money never passes through the employers business at all but flows straight from customers to team members. Just like cash! To be considered a digital-cash-equivalent tip, as well as this money never being handled in any way by the employer, the tips must always be optional for the customer (no Service Charge allowed!). They must go directly to individual team members, or can be “informally” shared equally with everyone working at the time. Team members must also have a choice – you can’t require them to use any cash equivalent system, or to share their tips (they must have the option to accept a cash tip instead, for example), it has to be up to them! Like cash it also means it’s up to the people receiving the tips to let HMRC know what they’ve earned. HMRC have made this really easy now, and we remind every user of our cash equivalent products to do this with clear guidance. Usually, HMRC will just make a little tweak to the individual’s tax code if they need to collect any tax meaning it’s paid through their normal payroll. Of course, HMRC don’t want us to pay more tax, just the right tax, so if you’re someone earning under £12,570 per year, you may not have any tax to pay on your tips! Perhaps the biggest upside to cash equivalence is that it provide absolute transparency for everyone involved. The customer knows the business isn’t involved in their tip, and the staff know that too. There simply cannot be any “funny business” of any kind! In a nutshell, both Service Charges/Tronc options and implementing a cash equivalent system have their pros and cons, and it’s a matter of what aligns best with your business’s goals and what your staff prefers.
As it currently stands, agency workers are to be treated on an identical basis to directly-employed staff once the Employment (Allocation of Tips) Act comes into force. Are there currently any tech solutions available to help operators navigate this?
We’re absolutely developing technology to help with this. Many TiPJAR installations can already support agency workers to participate in cash-equivalent tip sharing in exactly the same way as employees, and we’re working on extending this to our SuperTronc solution too. The wider industry may be in the early stages of adapting to this aspect of the Act. However, it’s worth keeping an eye on the horizon, as some excellent pieces of ‘agency’ staff tech are emerging, and they may well take the lead in providing solutions for this functionality. Whilst the treatment of agency workers is crystal clear in the legislation, best practice is expected to be included in the upcoming code of conduct, so depending on where that lands, we’ll doubtless see rapid innovation in the next few months.
What are the benefits to both employer and employees of a ‘service included’ model?
As above we are seeing some operators adopt this model – getting out of the service charge business completely and letting customers know they’re under no obligation to tip at all by including “Service Included” on the bill. It can be the best option for some businesses, allowing employees to have consistent, reliable earnings and the employer to construct a simple pricing model based on their labour costs. So we absolutely support any operator who wants to do this. That said tipping is still going to happen, even in these circumstances. Tipping is one of the oldest behaviours out there – pretty much as old as hospitality itself. People have been saying “keep the change” at the pubs, hostels, cafés and coach-houses for hundreds if not thousands of years and giving a small gift of appreciation to say thanks is one of the most natural human instincts. What’s changed more recently perhaps is that almost all of us get to participate in hospitality regularly - so tipping is more than ever simply a nice way to express gratitude. It makes people feel good to offer a tip and speaking as someone who worked in hospitality for many years – it feels so great to receive one. So even with a service included model, having some way for customers so say that extra thank you – only if they want to – we think is a great way to do it. The reality is that with people not carrying cash, many customers will want some digital option, and there’s never been more options to give your customers the choice and your staff the opportunity for tipping.
Which areas of tipping management are likely to drive the next tech evolution within the space?
We’re entering a new era where technology is reshaping the whole landscape. Cash is gone, and yet there’s never been more ways to pay – intelligent payment terminals, kiosks, apps we already have, things we scan to use websites. So we’re going to see a huge uptick in tip collection channels – multiple ways to get the tips in. And making sure however your customer pays, there’s always a tipping option. It’s not just about keeping up with the times; it’s about the bigger trend of personalising the experience for your customer and giving them more choice and making the whole process easier and more convenient for everyone. Trust and transparency are also becoming non-negotiable. Our industry is already evolving to have a much more people-first approach and having the right practices really does give an operator a competitive edge when hiring. I think many businesses will also start to look at the customer perspective – giving them real assurance about how their tips are distributed. Once fairness of tip distribution is guaranteed, I think we’ll start to see some mega innovation on how those tips are used – financial wellbeing and education being a huge one. Think budgeting help, savings options, reward schemes, and even financial education. We’re talking about taking care of our people’s financial wellbeing. Like all things tech - speed matters, too. We want to make sure tips get into the hands of employees as fast as possible. Real-time tip pooling and instant transfers to bank accounts or e-wallets are going to be game-changers. The big picture here is that this is making our industry an even better place to work and build a career. When tipping is fair, teams can get them quickly, and customers have full confidence, everyone wins. Happy employees make for happy, loyal customers, and happy customers drives businesses success. That’s the kind of hospitality industry we all want to build.