Hampshire hospitality businesses are being warned to prepare for new laws on tips and gratuities.

The changes, which come into effect on Tuesday, October 1, will make it illegal for employers to withhold tips and service charges from staff.

The Employment (Allocation of Tips) Act 2023, introduced by the Government, will protect the tips of more than two million workers.

This follows a consultation that revealed an estimated £200m was being withheld by companies.

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Jez Howson, employment tax director at accountancy and advisory firm Azets, is warning businesses (Image: Azets) The new rules require all tips generated at a workplace to be passed to employees in a fair and transparent manner.

Employers must allocate tips fairly and transparently, have a written policy on how tips are allocated to workers, and distribute 100 per cent of tips to workers by the end of the following month.

Southampton-based Jez Howson, employment tax director at accountancy firm Azets, said: "Employers must review their current arrangements for administering tips and ascertain what needs to be done to ensure compliance with this new legislation.

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

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He added: "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."

Mr Howson also advised businesses to seek professional help to understand and act upon the new legislation, host employee consultations, identify potential risks, and implement a tronc scheme.

A tronc scheme, originating from the French 'tronc des pauvres' (collecting boxes for the poor), is a pay arrangement that allows hospitality and leisure businesses to fairly share tips and service charges given by customers to staff.

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 manage the allocation and payment of tips, they are not considered earnings for NICs purposes and therefore only attract PAYE.