Tips and Service Charges

    Welcome to our latest blog post, “Keep Updated on Tips and Service Charges” – your go-to resource for the latest insights and developments in the world of hospitality. Whether you’re a seasoned restaurant owner, a budding café entrepreneur, or a hotel manager, staying informed about the ever-evolving landscape of tipping policies and service charge regulations is crucial for your business’s success. Join us as we explore the pros and cons of both tipping and service charges and delve into the nuances of the Employment (Allocation of Tips) Act 2023, exploring practical tips for navigating these changes in the UK hospitality sector.

    Keep your finger on the pulse of industry trends and ensure your establishment not only complies with the latest laws but also thrives in providing exceptional service.


    Tips V’s Service Charge

    In the hospitality world, tips are voluntary gratuities given directly by customers for great service, while service charges are fixed fees added to the bill, typically distributed among the staff.

    But which method is right for you? The decision between implementing a discretionary tipping system and a service charge involves a variety of factors, each with its own pros and cons.



    Here’s an overview, so that you can decide on which system’s best for you!



    Combining Both
    Some establishments combine both systems, allowing a discretionary tip on top of a smaller service charge. This approach aims to balance the stability of income for staff with the incentive for exceptional service.

    Ultimately, the best choice depends on the specifics of your business, your staff, and your clientele. It might also be beneficial to gather feedback from both employees and customers to understand their preferences and concerns.


    Getting the admin right!

    In a hospitality business, accurately managing the administration and taxes of tips is crucial, as it ensures legal compliance, fosters trust among employees, and avoids potential financial penalties, making it essential to have a reliable system in place for tracking and distributing tips.

    Transparency and record-keeping

    It’s important to get the admin side of things right with your tipping system. The Employment (Allocation of Tips) Act 2023, which is expected to come into force in July 2024, mandates significant changes in how tips and service charges are handled.

    In summary, the new bill states:

    Fair Allocation of Tips and Service Charges 

    The new law requires that all tips and service charges must be allocated fairly among workers, without any deductions by the employer. This legislation is intended to ensure that hospitality staff receive all the money left to them in tips by customers​​​​​.

    Transparency and Record-Keeping 

    Employers are required to have a clear policy on how tips are allocated and must keep records of their tipping practices for three years​​​.

    Timely Payment of Tips 

    Tips must be paid to employees no later than the end of the next calendar month after they are received​.

    Impact on Multi-Venue Operations 

    Tips received at a specific venue must be allocated to the staff of that venue, preventing the redistribution of tips across different locations​.

    Legal Protection for Workers 

    Workers will have the right to request information relating to an employer’s tipping record and can bring forward claims to an employment tribunal if their rights are breached​​​.


    As with most things in business, tips and service charges do lead us to the discussion of Tax consequences. The most important areas to be aware of are VAT and PAYE consequences. 

    Keep an eye out for blogs in the coming weeks discussing these VAT and PAYE consequences! 


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