Hospitality Accounting Specialist, James Todd & Co, Advises Sector Firms to Take Action Ahead of Legislative Changes

Chartered Accountants and Audit Specialists, James Todd & Co, prompts businesses to act on changes in tip distribution laws before October’s new regulations

As a leading commercial accountancy firm with a specialist hospitality accounting advisory team James Todd & Co has advised businesses to prepare for upcoming changes to the law, impacting the way companies manage and pay tips to their employees, including a new Code of Practice.

The Employment (Allocation of Tips) Act is due to be enacted on 1st October 2024. It will dictate the way hospitality businesses distribute tips paid to employees and handle the payments of obligatory and discretionary service charges.

While the law was originally drafted in 2023 and due to come into force in July, it has since been postponed to October – without any suggestion further delays are likely.

Understanding the Impacts of the Employment (Allocation of Tips) Act

While tipping may be perceived as a minor aspect of the financial management of a hospitality business, the values collected can comprise a significant proportion of revenues and employee’s pay. The question of parity has been exacerbated by changes such as:

• Growth in the percentage of businesses adding standard service charges or fixed cover fees based on the number of guests.
• The introduction of card-based tipping, where patrons add a selected value to a bill paid electronically rather than in cash.
• Growth in ‘gig’ economies such as ridesharing and food delivery services, where self-employed personnel depend on tips, yet may also be entitled to tips paid directly to the business via an ordering system or app.

The reforms are expected to affect around two million employees across the hospitality sector. Major changes include the requirement for businesses to produce written workplace policies, keep thorough records of payments received and made, disclose how tips are allocated, and pay tip distributions alongside salaries at the end of each month.

Workers in the hospitality sector will also be entitled to request information disclosures about how tips are managed and shared if there are any instances of potential or perceived unfairness.

Summary of the Inclusions Within the Forthcoming Tipping Legislation

The pending UK law covers several distinct areas, and employers will be legally obligated to pass 100% of all qualifying service charges, gratuities and tips to staff.

Businesses will, therefore, need to revise their systems to account separately for service charges included as a set amount or percentage of a bill, record the receipt of tips regardless of the payment method, and disclose how these have been distributed between staff.

For smaller hospitality organisations that primarily receive tips in cash, the systems needed may be straightforward. However, larger businesses may require an accounting clean up as they manage more complex gratuity receipts, larger workforces, and the complexities of past reliance on service charges as a proportion of revenues.

Advice for Hospitality Firms Without an Updated Tip Distribution Policy

Audit and Assurance Director, Oliver Read FCCA ACCA from James Todd & Co says, ‘Preparing for the mandated changes to managing gratuities is essential for countless businesses, including restaurants, bars, pubs, hotels, and any others who anticipate guests and clients paying tips to specific staff and teams in general, directly and through other methods of payment.

While the legislation will introduce reforms that will ensure staff are recognised for their contributions, including non-front-of-house employees who may previously have been overlooked, the scale of changes needed to be ready by October should not be underestimated.

Failing to prepare could be far more costly than dealing with workplace disputes. Employment tribunals around unfair tip distributions or non-compliant practices will be empowered to order businesses to compensate claimants by up to £5,000 for every instance where a breach of the law can be proven.

The legislation also allows tribunals to make public declarations of non-compliance issues, which could cause significant reputational damage.

With just a few weeks remaining until the legislation is expected to become mandatory, we advise all hospitality businesses that have yet to implement changes, publish tip management policies, and determine how best to handle the record-keeping of each payment stream to focus on areas that may need urgent updates’

The Employment (Allocation of Tips) Act does not include a transitional period or allowances for hospitality businesses found to be non-compliant, meaning that all companies and organisations affected must be prepared to comply with the legislation from 1st October 2024 onward.

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About James Todd & Co

James Todd & Co have been providing accounting services for more than 30 years across Chichester, Fareham, and Portsmouth for businesses across the South East. Their clients trust them to provide bookkeeping, financial auditing and compliance, management accounting and financial advisory services.

Media Contact:

Oliver Read

James Todd & Co
01243 776938
www.jamestoddandco.co.uk

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Source Company: https://www.jamestoddandco.co.uk/