DORSET’S hospitality industry businesses are being warned to be well prepared for changes to the law on tips and gratuities this autumn – or face the possibility of employment tribunals.  

New legislation being introduced on October 1 will make it unlawful for employers to withhold tips and service charges from staff. 

The government’s Employment (Allocation of Tips) Act 2023 will mean that more than two million workers will have their tips protected. 

The legislation follows a lengthy consultation process during which it was revealed that an estimated £200 million was being held back from staff by companies withholding tips. 

These new rules require 100 per cent of the tips generated at a place of work to be passed to employees in a fair and transparent manner. 

Jez Howson, employment tax director at the accountancy Azets, said: “Employers must review their current arrangements for administering tips and ascertain what needs to be done to ensure compliancy with this new legislation. 

“There is absolutely no time to lose as no transition period has been built in from 1 October when this new employment law comes into force – meaning employers must have made the required changes in advance. 

“It must be stressed that if a worker raises a concern that the allocation of tips and gratuities is not fair or feels that they are being discriminated against, whether deliberate or not, they are able to raise a claim with the employment tribunal which, if successful, could result in compensation payable of up to £5,000. 

“As this new legislation falls within employment law legislation, the risk will solely sit with the employer. This risk cannot be discharged to a third party such as a troncmaster – someone appointed by a business to be responsible for sharing tips to staff via a tronc scheme.” 

If an employer decides how tips are allocated, the payment of them is subject to both PAYE and Class 1 National Insurance Contributions (NICs). 

When an independent troncmaster is appointed to decide how any tips and gratuities are distributed and to manage the allocation and payment of those tips, they are not considered earnings for NICs purposes and therefore only attract PAYE. 

Therefore, appointing a troncmaster can provide savings of both primary and secondary NICs.