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Upcoming Tip Laws Set to Rock Hospitality Sector Further

empty coffee cup with bill and coins next to itA planned new bill set to come into effect in October will see employers unable to take any tips from staff. The legislation change, previously earmarked for July, has been delayed to allow struggling hospitality firms to prepare for it.

While this may not seem like an issue that would affect a great deal of businesses at first, companies that leave 100% of its tips for staff are actually in the minority.

A recent study from Three Rocks, a hospitality tech company, shows that only 28% of firms in the industry currently allow staff to take 100% of their tips home. This means that over two thirds of UK hospitality businesses will be worse off once the new law comes into play.

The 72% of firms that don’t currently comply with the forthcoming changes equates to roughly 90,000 companies across the UK. Of those, many take a percentage of tips in order to cover the costs of processing the payment, while others regularly take a profitable share of any gratuities.

“Breaking point”

Founder and MD of Three Rocks, Scott Muncaster, has his concerns about the upcoming bill. “This legislation, although introduced with good intentions, could push many businesses to breaking point”, he said. “The reality is that increasing costs by tens of thousands a month isn’t viable for many in the current climate”

Indeed, it’s been a tough few years for the hospitality industry. Eating out and similar activities have been way down the list of priorities for a public struggling to navigate a cost-of-living crisis. Add that to a higher national living wage with a wider age threshold, and it’s easy to see how many are now in trouble.

Of the businesses polled, 83% expect that the change in tipping laws could cost them up to an extra £12,000 a year to adopt. 18% meanwhile, believe it will cost them between £60,000 and £360,000 to comply.

Closures on the horizon?

Ben Westoby, senior client manager at Forbes Burton, suggests that we could see many businesses fall by the wayside. “The hospitality industry can’t seem to catch a break at the moment. Despite talk of the rate of closures slowing down, the sector still remains one of the more perilous to be involved in. Data compiled by CGA by NIQ and AlixPartners revealed that we are already seeing an average of four hospitality companies closing every day” he said.

“Luckily, postponing the changes till October will mean that businesses will at least have the lead up to Christmas to cushion any losses. Unfortunately, it may only delay the inevitable for some though. A glut of restaurant closures could be on the horizon during the historically lean months of January and February”.

It’s likely that many will turn to price increases to offset losses elsewhere, further damaging their ability to attract a public that itself is struggling with mortgage and bill increases. Some may choose to circumnavigate this by actively telling customers that prices are higher as they don’t need to tip. Either way, this latest legislation change has the potential to shake up how both hospitality businesses and the British public handle service charges in the future.

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