Less than a third of hospitality businesses are “currently compliant” with the new tipping law that is set to be introduced later this year, according to research by an Oxford-based specialist.

The report commissioned by customer experience technology firm, Three Rocks, suggests how new tip distribution laws will push hospitality operators to 'breaking point', with 83 per cent of respondents expecting to incur costs of at least £12,000 a year to comply.

Nearly one in five (18 per cent) claim costs could increase by £60,000 to £360,000 a year under the new regulations, the report shows.

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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. 

The Employment (Allocation of Tips) Act 2023 is due to come into effect from October 1 and will require hospitality businesses to distribute 100 per cent of customer tips and service charges to staff, with no exceptions other than standard-rate tax deductions.

The report named ‘Tipping Point: How new legislation will impact hospitality’ 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 28 per cent of operators are currently compliant with the Act, distributing tips among all staff without any deductions.

The majority, two-thirds (63 per cent) of businesses, currently take a percentage of tips from employees.

Around 29 per cent 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 per cent) take a profitable share of the tips, they will be unable to claim money from October.

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This means that 63 per cent 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 the latest government figures.

Speaking to 500 hospitality staff, the research uncovered that 42 per cent of hospitality workers in the UK have never been told about how tips are distributed to staff.

When asked whether they were happy with how tips are distributed to staff, more than a third (37 per cent) of staff said they were unsure but felt they should get more tips. 

Scott Muncaster, founder and managing director of Three Rocks, said: “The UK hospitality industry has been under immense pressure in the last few years.

"Beginning with the pandemic, then one of the biggest labour and skills shortages in decades, and now the cost-of-living crisis, operators need all the help they can get.

"This legislation, although introduced with good intentions, could push many businesses to breaking point as our research shows.

"The reality is that increasing costs by tens of thousands of pounds a month isn’t viable for many in the current climate. 

“Tipping has long been a sticking point for customers, staff and businesses, with many not knowing what to expect, what to give, or how to spread tips out among employees.

"The research shows that clarity and transparency is needed to help all three parties find a standardised process for tipping.” 

The Employment (Allocation of Tips) Act 2023 was originally due to come into force on April 1 but was pushed back by the government to allow businesses more time for implementation.