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New UK tipping law ‘welcome’ but could see venues ‘raise prices to cover costs’ (Image: Getty)
A new tipping law has come into effect today, requiring employers to hand the full tip, gratuity, or service charge to employees.
From October 1, if an employer breaks the law and retains tips, a worker will be able to bring a claim to an employment tribunal. Firms including restaurants, pubs, hairdressers and taxi operators are set to be impacted.
The Department for Business and Trade says these laws aim to “crackdown” on the minority of businesses that continue “unacceptable” tipping practices.
The legislation, known as the Tipping Act, marks a significant shift towards fairer pay in the hospitality and service industry. However, some warn it could leave businesses upping prices to cover the costs “hidden” in service fees.
Jane Pendlebury, CEO of HOSPA, told Express.co.uk: “The new tipping legislation, which mandates that 100 percent of tips go directly to staff, is seen by many workers in the hospitality industry as a positive move, aligning with the public’s desire for transparency and fairness.”
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Some bars and restaurants are thought to have “hidden” price increases in table service fees. (Image: Getty)
Research conducted by HOSPA and UKHospitality showed that 81 percent of the public regularly tip, with 82 percent preferring that tips go directly to the individual who served them.
Ms Pendlebury continued: “This legislation helps ensure that happens – albeit with tips spread throughout the team rather than 100 percent going to the direct server.”
However, Ms Pendlebury warned: “While the legislation has broad support from consumers, it does raise concerns for businesses, which will be impacted in a variety of ways. With tips no longer able to be used to cover sundry expenses, such as card payment fees, some operators may feel financial pressure, particularly in smaller establishments.
“We may see some hospitality venues raise prices or adjust service charges to cover these costs, especially in an industry already facing rising expenses.”
Ms Pendlebury suggested that additional HR documentation will also add an “administrative burden”, while there’s an increased risk of tribunals disputing the fair distribution of tips, adding that the “challenge now” is for businesses to adapt to this new environment.
Sacha Zackariya, author of Leading Travel and Tourism Retail, noted that service charges have increased greatly in the UK in recent years, which could have been used to mask price increases.
Mr Zackariya said: “While it makes sense that these tips should actually be distributed to the staff, it wouldn’t surprise me if this resulted in prices going up more, as restaurants have been using these ‘service charges’ to cover price rises, and will now need to distribute some of them to their staff.”
He added: “It’s worth noting that tipping in many other European countries, such as Spain or Italy, consists of a few coins or a low denomination note.
“The flat service charge rate should really be lowered so tourists do not feel they are being ripped off from both the inevitable price increase of the food and drinks. Better to just let them know the true price when they look at the menu – not their bill at the end.”
For Sam Harrison, a long-time restauranteur who owns four restaurants across West London, including Sam’s Riverside, the new legislation will not make a difference.
He told Express.co.uk: “Obviously there is a lot of concern over the changes to how tips are distributed. For restaurants like mine that already distribute 100 percent of the tips to the team, then no change is required.
“I am sure some restaurants may look to increase their prices to compensate and I think these come down to the bottom line more than anything.”
Sam Shearman, the founder of cocktail bar chain, Alcotraz agreed that the new law comes as a “welcome change” that opens up a fair and transparent way of compensating employees for their hard work.
However, he said: “Due to high energy prices and the cost of living crisis, some businesses have suggested a need to raise prices slightly to accommodate for the costs associated with the new tipping legislation. This will in return make food and drink more expensive for the consumer.”
Mr Shearman said some businesses have even suggested cutting staff wages to “compensate for the extra money that will be made for tips”. He said: “This, in my eyes, undermines the original idea of the legislation in the first place.”
He added: “The whole purpose of the new tipping legislation is to act as a safety net for both employees and consumers, that way consumers know where their tips are going, and employees are guaranteed to receive them. Whilst there is currently immense pressure on restaurants and bars to stay afloat, I believe that raising what are already high consumer costs will just risk driving customers away, pushing them to stay home and save money instead of spending time out.”
Dave Lee, founder of Planday, a platform that helps hospitality businesses run their operations, said the change is “a step forward” in treating employees with greater respect, however, “the impact on pricing and service charges remains to be seen”.
He added: “Complying with the law is important – and so is being seen to comply. The reputational damage of getting it wrong could be more long-lasting and costly than any fine; it could cost you customers and team members, now and in the future.”
The Department for Business and Trade predicted that the new law will mean a further £200million will be received by workers rather than their employers.