At the start of last month, the hospitality sector woke up to a new normal.
The Employment (Allocation of Tips) Act 2023 is now in full effect, and it’s been a challenging change for many businesses.
You should be aware by now of what this actually entails but, just in case you’re not, here’s a quick breakdown:
- You now need to allocate qualifying tips to workers in a fair and transparent manner.
- You must pay qualifying tips to workers within one month of the end of the month in which they were received, subject only to authorised deductions (e.g. PAYE where relevant.
- Your business must have a written policy on allocating qualifying tips that is available to workers.
- You must maintain records of all qualifying tips distributed and make them available to workers on request.
There are some serious compliance issues intertwined in this – many of which will require extra work on your part – and we’ve been helping businesses manage this evolution.
You should have already made these changes – they entered effect on 1 July 2024 – and if you haven’t, you need to get cracking as soon as possible!
I haven’t implemented the changes yet, what should I do?
For those who are still not compliant with the new legislation, you are risking some serious repercussions from HM Revenue & Customs (HMRC), including:
- Penalties
- Fines
- Possible legal action
All of which is an existential threat to your business.
It’s vital that you speak to your accountant as soon as possible, therefore, to get systems and processes in place to manage your tips and tronc. *
*(Tronc is a French word, meaning ‘money box’, and commonly refers to the collective pot of tips shared amongst your employees).
As your accountant, we can help you develop an accounting and distribution system for paying tips to your employees and ensure you meet all of the compliance requirements necessary.
Hidden costs of the new legislation
It’s important to note that this isn’t just a compliance-related issue – it can also have significant effects on your business’s operational costs and, fundamentally, your bottom line.
If you were previously using tips to pay for things like employee meals or administrative fees, this is no longer available to you. As such, you’ll need to dip into your profits to cover these expenses.
On top of this, the administrative burden might cut into your profitability – with more staff time spent managing tips, there’s less time available for running your business.
There’s even a possibility you’ll need to hire a troncmaster or additional staff to manage the changes in-house.
Remember, your employees can request access to the records you produce every three months, and you must provide them within four weeks of the request – again cutting into your productive time if you receive numerous demands at once.
You may also need to develop or purchase new systems for maintaining compliance, another cost impacting your bottom line.
As you can see, the legislation isn’t an easy thing to adapt to for many hospitality businesses and it’s causing a lot of strife.
The easiest way to manage the change (and quickly become compliant if you’re not already) is to speak with an accountant and tax adviser who can help you develop a strategy.
We’re happy to have a chat about this and have assisted many of our clients with this issue already, so please don’t hesitate to get in touch if you’re in the hospitality sector.
