Millions of employees are set to take home more earnings, as the new ‘Tipping Act‘ comes into force this October. These new regulations are monumental for people working in hospitality, as new rules state that 100% of tip earnings must go to workers. Businesses in England, Scotland, and Wales, will be breaking the law if they hold back service charges, make any deductions to tips, or allocate them unfairly, which has been a long-standing issue in the industry.

In this guide, the founders of Alcotraz break down the new rules, and outline how to implement fair tipping policies for your business.

A breakdown of the new rules

As part of the new rules, employers are now required to:

• Pass on all tips and service charges to workers without deductions, except for specific cases like income tax.
• Ensure that tips are distributed fairly and transparently.
• Follow the government’s Code of Practice on fairness and transparency when handling tips.
• Keep a written policy on how tips are managed and make it available to all staff members.
• Maintain a record of all tips and their distribution.
• Include service charge into the tip sharing process.
• Pay all due tips within one calendar month.
• Pay employees at least the minimum wage, without accommodating tip earnings. Meaning that the earnings from tips won’t count towards the national minimum wage, or employees salary.

Guidelines for fair tip distribution

Before implementing any new tip distribution system, it’s essential to speak to your staff and involve them in the process as much as possible. That way, you can ensure the majority are happy with the changes, and that they have been given the opportunity to voice their concerns if they have any.

Talk to Your Staff

Gather feedback from your team to understand if they have any preferences or concerns as this will help ensure that the tipping system is fair and transparent to everyone.

Step 1: Gain feedback

Your employees can offer valuable insights and help you understand their preferences, concerns, and potential challenges that could come from implementing a new tipping system. That way, you can adjust it accordingly. Why not try a feedback session, or anonymous form if people would rather voice their opinions in private? By creating a structure that works for everyone, this will ensure problems from arising later on down the line.

Step 2: Define clear guidelines

Once a tipping system has been agreed on and established, write out a set of clear guidelines on how tips will be allocated and distributed. These should be easy to understand and accessible to all staff members.

Step 3: Regular reviews

Lastly, new systems should be about trial and error. It’s important to give a trial period of 3 – 6 months, and then review how well the new tipping system is working for everyone. If staff are unhappy with the current system, repeat step 1 again.

Sharing and allocating tips

Allocating and distributing tips fairly does not necessarily require employers to allocate the same proportion of tips to all workers. However, to keep workers happy and the splitting process fair, here we recommend a few different methods you can use to split tips properly:

Full split 

If all staff members agreed, you could fully split where each team member gets the same amount regardless of their role or interaction level with customers. This method promotes a strong sense of teamwork, but may not take into account different levels of responsibility, and workload.

The hours worked ratio

An hours work system could be given out at the end of every week, and take into account the number of hours worked per each staff member. That way you can ensure that tips are allocated proportionally based on individual effort, and the time they have contributed.

Tiered responsibility

A tiered system method would allocate a larger portion of tips to staff who have more direct customer interaction, while back-of-house staff will receive smaller but consistent shares. For example, waiting staff could receive 60%, bartenders 20%, back of house 10%, and the kitchen staff receive the remaining 10%.

Hybrid system 

To address the pay gap difference between front and back-of-house staff, a hybrid model would have a percentage of tips reserved for back-of-house and kitchen staff. For instance, 50% of tips could be split between all front-of-house workers, and the other 50% allocated to the kitchen and back-of-house workers.

Implementing a fair and responsible tipping system is key to creating a positive work environment in the hospitality industry. By following these new regulations and guidelines, you can create a tipping system that recognises hard work, and ensures that all staff feel valued making for a more harmonious and productive work environment.