How much will new tipping legislation cost hospitality businesses?

While the Employment (Allocation of Tips) Act coming into effect on 1 October this year may have support from consumers and staff working in the sector, it will come at a “hefty” cost, according to a new report.

According to the UK Government, the new legislation “is to ensure the fair and transparent allocation of all tips, gratuities and service charges”.

Among the features of the act, which was introduced in 2023 but won’t be implemented until later this year, is a requirement that employers “pass on all tips and service charges to workers without deductions, except in very limited scenarios, such as deduction of income tax” and “ensure that tips are distributed in a fair and transparent manner when the employer takes control, or exerts significant influence, over their distribution”.

The report into its popularity and impact, commissioned by Three Rocks and called Tipping Point: How new legislation will impact hospitality, surveyed 2,500 people, ranging from hospitality business owners to staff to customers.

Of the customers polled, 73% supported the implementation of a Tipping Standard Practice, whereas 59% of staff agreed.

However, only 42% of hospitality workers have reportedly been told by their employers of the new legislation coming in.

Indeed, for the management side, the report claimed that the new legislation “will incur hefty costs”.

Around a fifth of operators, equalling around 25,740 operators, will each see costs rise by anywhere from £60,000 to £360,000 per year as a result of the change – an indication of just how much some businesses have been holding from their employees.

Indeed, the report claimed that only 28% of hospitality businesses are currently compliant with the legislation.

Given the precarious state of the sector at the moment, such costs could prove too much for some businesses.

Pint prices

In order to recoup some of the loss, the report claimed that almost three-quarters (74%) of pubs, bars and restaurants are considering introducing a service charge for drinks – this means tipping for a cocktail at a bar, or even for a pint at the pub.

While such a practice may seem controversial, the report suggested that it has strong support from consumers, with 73% believing that people should tip when buying drinks at a bar, and almost a third (34%) saying that bar staff should be tipped 10-20% for making drinks.

However, whether the public accepts an added cost to their pints, particularly when Chartered Trading Standards Institute (CTSI) found that most of the beer being served in UK pubs is being short-measured, is another matter altogether.

It should also be noted that the price of pints has consistently risen across the UK for years, with the average cost of a Carling in a Wetherspoons pub rising by 11% between October 2022 and October 2023.

Related reading:

How stingy are Brits when it comes to tipping?