Tips: Changes to legislation (from April 2023)

The Employment (Allocation of Tips) Bill 2022-23, widely expected to become law for the start of the 2023-24 tax year, creates a new legal obligation on employers to ensure all tips, gratuities & service charges they receive, or have control of, must be paid to their employees without deductions. Employers must also ensure that the distribution of these tips to their workers is fair and transparent.

This could have far-reaching implications for those employers who make payments to their staff via tips as well as those employers who operate a separate Tronc scheme.

Tips, gratuities and service charges will no longer be subjected to “admin” charges, regardless of whether these take the form of cash or non-monetary methods such as card payments. Only legal deductions under the current tax regulations can be made & only then through the payroll process.

As things stand, those employers operating a Tronc system will be least impacted as only tax is charged against the employee on receiving the payment. However, those employers paying tips to employees through the payroll & suffering NI & Pension contribution liabilities will be severely impacted.

Currently, there is no legislation preventing the employer from deducting the employer NI & employer pension liabilities from the total tips fund before the tips are paid through the payroll. If the Tips Act becomes law under the current proposals this will become illegal & employers could well find themselves having to make NI & Pension contributions over and above budgeted salary levels & at levels they have no control over.

It should be mentioned that, due to all the turmoil in government over the last few months, the introduction of the Allocation of Tips Bill may be delayed.

Disclaimer - All information in this post was correct at time of writing.