New legislation on how tips must be allocated takes effect on the 1st October 2024 (originally 1st July 2024), once it receives parliamentary approval.
Its purpose is to ensure employees receive the whole amount of any tips, gratuities and voluntary service charges in a fair and transparent manner.
This law supplements current guidance on employee tips – it doesn’t matter whether the tip is paid by cash, cheque, card or digitally;
An employer who shares out the tips to the employees must include them in the payroll - they are subject to PAYE tax and employer’s national insurance.
or
A troncmaster (this cannot be the employer themselves) may run a separate PAYE scheme and decide how to allocate tips – these are still subject to PAYE tax. The troncmaster is responsible all aspects of operating the scheme.
or
Employees who receive the tip directly from the customer – without any involvement from the employer - are responsible for reporting this income to HMRC and paying PAYE tax themselves.
If your business receives tips, gratuities or voluntary service charges we recommend that you read the following guides and take any necessary steps to ensure that you comply with the change in the law.
To take effect on the 1st October (at the time of writing the guidance had not been updated to reflect the new start date): changes from October 2024
The current guidance can be found: here
Further notes to be aware of;
Tips cannot be used to count towards minimum wage pay – this has been the case since 2009
The new rules apply to all workers including those on zero hours contracts
Tips must be paid by end of month following the tips being given
Under the new law staff have the right to request information about allocation (can be used in a tribunal)
The new law is immediate with no transitional period
No deductions can be made by the employer (for example for administration or bank charges)
If you need any help with your payroll, please get in touch with our payroll manager, Anne, on 01756 799823.
Further reading: Tipping Act
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