The new law is designed to increase the earnings of around two million workers in the hospitality sector, including waiting and kitchen staff. This legislation follows numerous reports of companies deducting money from card payments intended for staff, with several exposés published by the Guardian and the Observer.

Kate Nicholls, chief executive of UK Hospitality, notes that businesses have been gradually preparing for this change and working towards a best practice code supported by unions.

Rising Costs and Potential Price Increases

Many restaurants are already struggling with rising costs, including a higher minimum wage and persistent food inflation. These pressures mean that some businesses may need to recoup costs by raising menu prices, reducing portion sizes, or cutting costs elsewhere. Saxon Moseley, head of leisure and hospitality at consultancy RSM, explains, “Margins will be hit, in some cases fairly drastically,” particularly for those that have relied on the service charge to offset their wage bill.

Legal Complexities Around Fair Tip Distribution

The new law also brings legal challenges as businesses work to agree on a "fair" share of tips. Michael Powner, an employment partner at Charles Russell Speechlys, highlights the difficulties in establishing a fair system, particularly when considering factors such as maternity or sickness absence. Ensuring that any distribution of tips is free from discrimination is another concern for employers.

Union Concerns Over Tip-Pooling Committees

Bryan Simpson, a representative of the Unite union, expressed worries about businesses appointing unelected individuals or senior managers to head tip-pooling committees. He accuses some companies of misinterpreting the new legislation to serve their own interests, stating that Unite will challenge any unfair tipping policies.

Changes in Tip Distribution at Pizza Express

At Pizza Express, the new rules mean that waiters will have to share their service charge tips with salaried managers and shift managers. The restaurant chain uses a “tronc” pooling system, where staff vote on how tips are shared. The waiters’ share has been reduced from 70% to 68%, and managers who wait tables will now be included in the pool.

Adjustments in the Industry

Many businesses, including The Ivy, have already adapted their tips policies to ensure service charges go to the workers. However, some, like the London chain Ping Pong, have introduced alternative charges, such as a “brand” fee, before the new rules came into effect.

The hospitality industry, where some businesses automatically add service charges of up to 15%, has substantial sums at stake. A 2022 survey by UK Hospitality found that up to 20% of businesses were using part of the service charge to cover operational costs.

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