Hospitality claims that new Employment (Allocation of Tips) Act 2023, coming into force October 1st, will cost up to £360k a year to comply, study finds
- Just 28% of hospitality companies are compliant with the new Act, equating to more than 90,000 businesses which now need to change the way in which they operate*
- Nearly a fifth of hospitality businesses, equivalent to 25,740 operators across the UK, could see costs increase by between £60,000 to £360,000 a year due to new legislation
- Despite the new Act coming into effect next month, less than half (42%) of hospitality workers have been told about their employer’s tipping procedures
- Nearly half (44%) of operators and 59% of hospitality workers would consider the introduction of a Tipping Standard Practice as an alternative fairer, more transparent system
19th September 2024, United Kingdom: A new report has revealed how the government’s Employment (Allocation of Tips) Act 2023, set to come into effect October 1st, will push hospitality operators to breaking point, with 83% of respondents expecting to incur costs of at least £12,000 a year to comply, the equivalent of 118,690 UK operators. Nearly one in five (18%) claim costs could increase by £60,000 to £360,000 a year under the new regulations.
Despite hospitality closures slowing, these findings come at a worrying time for the industry, with more than four hospitality businesses closing in Britain every day so far in 2024, according to data from CGA by NIQ and AlixPartners. Recent reports of a potential smoking ban at hospitality venues also promises to pile more pressure on to businesses which are already struggling.
The Employment (Allocation of Tips) Act 2023 will require hospitality businesses to distribute 100% of customer tips and service charges to staff, with no exceptions other than standard-rate tax deductions. The changes also make it mandatory for all hospitality businesses to have a written policy accessible to staff on how tips are dealt with at their place of work.
The report, ‘Tipping Point: How new legislation will impact hospitality’, commissioned by three rocks®, a leading customer experience technology specialist for the hospitality sector, surveyed 1,000 hospitality businesses, 1,000 customers and 500 staff in the UK to gain their insight into the new government legislation and to understand feelings towards tipping. The study included UK hospitality businesses of all sizes, from independent operators to national restaurant, pub and bar chains.
The findings revealed that only a mere 28% of operators are compliant with the Act, distributing tips among all staff without any deductions. The majority, two thirds (63%) of businesses, currently take a percentage of tips from employees. 29% of those use these tips to cover costs such as processing fees, costs the business will now have to cover under the new Act, while over a quarter (28%) take a profitable share of the tips, money they will be unable to claim from October. This means that 63% of businesses will have to make changes to the way they operate to comply with the new legislation, which is equivalent to more than 90,000 hospitality businesses currently operating in the UK according to latest government figures*.
Tips for Staff – A better way?
Speaking to 500 hospitality staff, the three rocks® research uncovered that 42% of hospitality workers in the UK have never been told about how tips are distributed to staff, which equates to 756,000 employees across the UK*, based on the latest government figures. When asked whether they were happy with how tips are distributed to staff, more than a third (37%) of staff said they were unsure but felt they should get more tips.
The study revealed that there could be a better and fairer alternative tipping process to the Employment (Allocation of Tips) Act 2023. Nearly half (44%) of operators would support the creation of a Tipping Standard Practice, an official tip amount implemented ‘across the board’ for customers and a standard process for businesses to distribute tips to staff.
59% of staff support the concept, with 27% saying it would make financial planning easierand a further fifth saying it would be a fairer system for everyone. An overwhelming 73% of the 1,000 customers polled agreed it was a good idea.
Shifts in Tipping Habits
The study also delved into tipping behaviour, revealing that nearly three quarters (74%) of UK hospitality companies either already, or plan to, add a service charge as standard for smaller tasks such as serving a pint, preparing a cocktail, checking people in or carrying luggage. Nearly 1 in 3 operators will add a service charge of between 5-10 per cent for such tasks, suggesting that the UK is heading towards an American-style service charge, where 20% is the standard gratuity for all types of service.
The British public also support the Americanisation of tips, with 73% of customers agreeing that people should tip when buying drinks at a bar and over a third (34%) saying they should tip bar staff between 10-20% for making their drinks.
Scott Muncaster, founder and Managing Director of three rocks®, said:
“The UK hospitality industry is struggling, and recent government intervention has done nothing to ease concerns from operators. This new legislation, set to come into force in October, will massively increase costs as our research has shown. This, coupled with reports of an outdoor smoking ban proposed by the new Labour government, is cause for concern, and may push many businesses to breaking point in the final quarter of this year and beyond.”
For a full copy of three rocks®’ ‘Tipping Point: How new legislation will impact hospitality report’, visit contact us.
Press contact: Callum Gable or Verity Blake at HeadOn PR
threerocks@headonpr.co.uk | 01242 335 246/07920 792183
three rocks®’ virtual newsroom is available to access here, for assets including:
- A copy of this news release
- A headshot of Matthew Rawlins, CTO at three rocks®
- A headshot of Andrew Kaplin, CDO at three rocks®
- A headshot of Scott Muncaster, Managing Director at three rocks®
Notes to editors
About the research
1,000 owners / managers of UK hospitality businesses of all sizes, from independent traders with 1-5 employees to national chains with locations across the UK were surveyed between 28th March 2024 & 01 April 2024.
1,000 UK customers of UK hospitality businesses of all sizes, from independent traders with 1-5 employees to national chains with locations across the UK were surveyed between 28th March 2024 & 1st April 2024.
500 UK workers in UK hospitality businesses of all sizes, from independent traders with 1-5 employees to national chains with locations across the UK were surveyed between 08 April 2024 & 09 April 2024.
Latest Government figures on number of hospitality businesses in the UK
*Based on representative sample of UK hospitality companies and staff; as of March 2023: https://www.gov.uk/government/
About three rocks®
three rocks® is a people-first tech company specialising in creating solutions that enhance experiences, working with some of the UK’s largest restaurant brands such as Pizza Hut, TGI Fridays and The Big Table Group. Beyond hospitality, the company works with B2B clients across a multitude of sectors including wholesale, publishing and Internet of Things solutions.
The three rocks® team have a collective 30 years in designing bespoke technology solutions driven by data collection and analysis which transform businesses by enhancing customer, employee, and user experience.
Founded in 2023 following the merger of Adactus Ltd and Six Sevens Solutions Ltd, the company is on a mission to bring transformative end-to-end experience enhancement software and data-led solutions to the hospitality and wider business sector.
From reservation and ordering to post-visit CRM systems, three rocks® has the in-house skills and team capacity to develop best-in-breed solutions, starting with its new flagship product, three rocks XMS.
three rocks XMS is a totally modular experience management system which enables businesses to create a tailored CX tech stack to match their individual business needs. XMS offers businesses a pick and mix of cutting-edge technology including digital booking systems, self-service kiosks, restaurant order management solutions, and CRM and data analysis processes. Businesses benefit from a tailored suite of products that match their needs and budgets, and transform customer service, experience, and company growth. XMS is also flexible and can be tailored to suit any industry.
Third-party news items that are posted on the Guild website’s news section come from press releases received by the Guild. These press releases are posted as they have been received and their publication on the Guild website is intended as an informational service provided to our members and website visitors. As such, the publication of a story from a third-party source is neither an endorsement of the content, nor its sender, by the Guild. For enquiries on any news item, please use the contact details that can be found at the bottom of each post.