Employment (Allocation of Tips) Bill

David Johnston Excerpts

3rd reading
Friday 20th January 2023 Commons Chamber

[Virginia Crosbie (Ynys Môn) (Con)]

I beg to move, That the Bill be now read a Third time.

I am glad that we have time to debate this important Bill. It has a simple message: to promote fairness and transparency to ensure that workers receive the tips that they earn. It will create a level playing field for businesses that are already passing on tips to workers fairly and transparently. It will create confidence for consumers, who will know that the full value of the tips that they give will go to the workers. I thank the Minister and the Government for supporting the Bill and I am delighted that it has Government and cross-party support on Third Reading.

I also thank the hon. Member for Watford (Dean Russell) for his work on the Bill; he has been instrumental in bringing this important legislation to the fore. The Bill would not be where it is today without his determination and hard work. When he asked whether I would take the Bill over from him, I was honoured. I have experienced first hand the importance of tips and, like many young people, I financed my sixth form and university studies by working in cafés and pubs.

My constituency is dependent on the hospitality and tourism sector, which is also one of the largest sectors in Wales. At a particularly difficult time, this is an opportunity to help and support those who work in the tourism and hospitality sector, which has one of the lowest hourly rates of pay. It is estimated that the Bill will benefit about 1 million workers in the sector with a financial benefit of about £200 a year. With the cost of living at the front of many people’s minds, the Bill will help those workers who are wrongly not receiving the money that they are due from the tips that they have earned. In sectors such as hospitality and beauty services, customers recognise and reward good service and hard work through tips, gratuities and service charges, which I will refer to collectively as tips.

The customer expects 100% of the tips that they leave to go to the workers. We already know that that is happening in most businesses, where tips are passed on to staff in full, but some unscrupulous employers exploit staff by retaining some or even all of the tips that workers earn. That goes against the assumption of the large majority of customers that 100% of the tips that they give will end up in the pockets of the workers.

[David Johnston (Wantage) (Con)]

My hon. Friend is absolutely right: customers expect 100% of tips to go to staff. Does she agree that people who work in hospitality will also make the assumption that any tips they get will be theirs, and that their wage, which may not be very high, will at least be supplemented by what they earn for their service?

[Virginia Crosbie]

My hon. Friend makes a very good point. People—particularly young people—who are looking for employment in the hospitality sector will look at it as a whole package when considering what it means for them and whether they will be able to earn enough. Tips are a vital part of their calculation when they are looking at taking such roles.

Workers expect the tips that have been given in recognition of their hard work and good customer service to be given to them in full. The Bill promotes fairness for workers by creating a legal obligation to pass on tips to workers, in full, with no deductions other than in very limited circumstances such as those required under law. It will provide protection across all sectors, but focuses on changing employment law to bring increased protection for workers in industries in which tipping is common. An additional benefit of this legislation is the increased confidence that consumers will have that the tips they choose to leave in recognition of good service will actually go to the workers for whom they are intended, and are not unfairly pocketed by bosses.

In determining how to allocate tips fairly, the employer must have regard to the relevant provisions of the upcoming statutory code of practice, which will set out principles of fairness and transparency relating to tips. That code of practice is necessary to describe—in more detail than a Bill can—the different circumstances that are likely to be “fair” and “unfair”. A number of examples will be provided to illustrate what fair tipping practices look like. Those examples are not included in the Bill, as that could limit flexibility for employers. To issue a code of practice, the Secretary of State must consult the Advisory, Conciliation and Arbitration Service, and publish a draft to allow stakeholders to make representations, before laying the draft before both Houses of Parliament for approval. The code of practice will be statutory and have legal effect, meaning that it can be introduced as evidence to employment tribunals considering whether an employer is in breach of the legislation.

There is one main theme running through the core of the Bill: the creation of a legal obligation on employers to pass on tips in full to workers. Giving workers 100% of tips means that there can be no deductions from tips by an employer other than in the limited circumstances required or permitted by other law, including tax law. Prohibited deductions include, but are not limited to, card transaction fees and administration costs. Some employers may use a tronc system to help with distributing tips. Under that system, which is mostly used in the hospitality sector, an employer delegates the collection, allocation and distribution of tips to a person or persons known as “troncmaster” or “tronc operator”. It is important that we retain flexibility for employers to choose how to distribute tips, as long as that distribution is fair.

Transparency is a crucial part of the Bill, and information plays a significant role. However the tips are allocated, the Bill provides workers with a new right to make a written request to access the relevant parts of their employer’s tipping records. That allows workers to seek redress if they are not being treated fairly by gathering evidence and bringing a claim to an employment tribunal where necessary. The Bill will be enforced by workers through the employment tribunal system, and provides employment tribunals with remedies for situations in which an employer has made deductions from tips or has not allocated tips in a fair and transparent way. Workers will be able to present to an employment tribunal complaints about an employer failing to comply with its obligations to allocate tips fairly or failing to do so in time. The Bill also allows agency workers to present complaints. The limitation period for such complaints is 12 months.

Workers’ rights to bring forward such claims are at the core of the Bill because employment rights need to be underpinned by effective enforcement. The tribunal can make a range of orders, including orders requiring the employers to revise any allocation of tips that they have made or to make a payment to a worker of up to £5,000 in compensation for consequential financial loss. That will help those workers who have not been fairly treated when tips have been distributed.

The Bill will have a limited impact on employers who already handle tips fairly and transparently. It is not expected that there will be significant change or cost to business in complying with the new rules. Employers will still have flexibility on how to design their tipping policies, how to maintain records, and how they communicate their policies to workers. In addition, when workers request information, employers will have a period of four weeks to fulfil that request.

I will conclude by giving a final overview of the Bill. It sets out the right that tips should go to the workers who earn them, and that those tips should be distributed both fairly and with transparency.

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[David Johnston (Wantage) (Con)]

Like many people, I was surprised to discover that tips are not being passed on. I think our understanding has always been that we pay the money on a restaurant menu for the food, and any additional money we leave is for the service. We have all given particularly generous tips for very good service, and I dare say we may have given a not so good tip, or maybe no tip, for particularly bad service, although never in our constituencies, obviously—there would never be bad service in my constituency, I hasten to add.

It sticks in the craw to think that a person may have worked so hard and received no benefit for that hard work, and that the tip would just be taken by the business owner. There are particular peak periods, such as Christmas, when the amount earned in tips can be a vital boost to a person’s income for that month, and maybe even for that year.

[Simon Baynes (Clwyd South) (Con)]

My hon. Friend is surprised that this is an issue. Has he or anyone he knows come across the difficult question of whether to tip by credit card or in cash? If the tip goes on the credit card, it is perhaps less likely to go to the employee. Has he given a great deal of thought to that issue?

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[David Johnston]

I am grateful to my hon. Friend for his intervention. I was concerned that he was going to ask how much I leave in tips. Obviously, I am a very generous tipper.

[Richard Fuller (North East Bedfordshire) (Con)]

I am intrigued by my hon. Friend’s use of the word “generous.” In percentage terms, what does he consider to be a generous tip?

[David Johnston]

I am even more grateful to my hon. Friend for asking that question. I am probably not quite as generous as they are in the US, where a 25% or 30% tip is now sometimes recommended on the bill. I would always err on the side of giving a good tip, even for average service, and an even better tip for exceptional service.

[Dean Russell]

I have been asked, as I am sure my hon. Friend has, whether the Bill will move us towards the US model of tipping. As I said earlier, it is important to note that this is not about making tips part of the salary. We want workers to have good salaries, and the minimum wage has been increased again. Tips are a top-up. They are an additional gratuity to say “thank you,” rather than being part of the salary. That has come up a few times.

[David Johnston]

My hon. Friend makes a couple of important points. On his first point about the US, it was a particularly bad practice when employers were using tips to try to meet the minimum wage. We have made great strides in increasing the national living wage in recent years. I think it has now hit £10.40; the Minister can correct me if I am wrong, but I believe it is at least £10. That is particularly important. If we went into a restaurant and bought a pizza for £10, and the member of staff said when we paid, “I’m going to take £2 of that £10 for the pizza and keep it for myself,” there would be outrage. There would be outrage about the reverse situation, and it is right that we should feel offended on behalf of staff who are working hard for these tips and not getting them.

My hon. Friend the Member for Cheadle (Mary Robinson) is right: this is not just about hospitality. She made an important point about nail bars, hairdressers and lots of other places that I have many of in my constituency, but I realise that this is, in large part, about hospitality. My constituency has a lot of hospitality venues—pubs, for example. There are only seven MPs who have more pubs in their constituency than I do. I have been trying to get around them all, and I am doing pretty well.

The hospitality industry is vital for the UK economy, and particularly for younger workers, ethnic minority workers and part-time workers. It is a very accessible industry for people to get their foot on the ladder and get some important skills. It is hard work, often involving someone being on their feet all day, in difficult conditions, and dealing with difficult customers. It might involve long hours. It is vital, and it is hard. People get good skills, and they should get all their tips.

It is a small minority of employers who are doing this. Most employers will feel, as we do, that staff should be given the tips for the work they have done. That small minority of employers are shooting themselves in the foot in many ways, because where an employee has a choice between different employers—of course, they do not always—the chances are that they will pick the one that will let them keep their tips. That is a perfectly logical decision to make, and it is probably the decision I would make. As we discussed earlier, just as the customer expects a tip to go to the staff, the staff think, “That wage may not be very high, but I’ll be able to earn more in tips.”

This debate reminds me of two other things that are relevant to the passage of this legislation. The first is unpaid internships. The hope with this Bill was that employers would not wait for it to take effect but would start to change their practices before the statutory code came into effect, because the attention on this issue would make those practices socially unacceptable. I hope that that has happened. This reminds me of unpaid internships, which have unfortunately been rife in the UK. They have also been rife in this place, by the way. One reason why we were slow at first to make progress on getting rid of unpaid internships was that the two groups we often need for campaigns use them a lot: politicians and the media. Both are usually very important for campaigns on issues, and both were using a lot of unpaid internships.

When we look across our professions—media, fashion and many others—we find people working for no money. Their employers would say that they were providing a great opportunity, because people in those positions were getting skills that they would need later in the workplace, but the fact is that someone needs a number of things to let them do an unpaid internship. As internships are concentrated in London, interns usually need to move there and will need accommodation. While they are doing work for their employer, they will need money from somewhere, so they will either be working two jobs—one paid for and one not—or, as has often happened, be from the wealthiest families, who can support their children by supplementing those internships. Those internships then lead to jobs, and those jobs look unrepresentative of the country of a whole because of who gets into them.

Again, it is a small proportion of employers doing those things, but as we have shone a light on the issue with the Bill, making it clear that it is not acceptable for employers to be taking their staff’s tips, we would hope that employers have already started to change their practices. None the less, the Bill is important, and I am glad that it is being brought in.

The second issue that I am reminded of is access to cash, which, as Members have touched on, is currently a big challenge. We have banks closing branches all over the country, we have cashpoints disappearing, and we have an assumption that everybody wants to do everything by card or online. I get quite a number of constituents writing to me—I am sure that we all do—who are really concerned about that. They really like to be able to use cash, they worry that it will disappear and they do not know what they will do about it.

That is relevant to the Bill because we have heard the odd voice in the hospitality industry saying that the Bill is not a good thing because there are cost pressures on the hospitality industry at the moment and that, when people pay on card, the business incurs fees for those transactions, so it is not right to let all of the money go to the staff. Their basic argument is, “They might tip on card. I am paying money for that charge, and you’re saying that I have to give the entire thing to the staff.” I am hugely sympathetic to the hospitality industry in lots of ways, but I am afraid that I am not sympathetic to that particular point. However, it does relate to access to cash.

By the way, we could all do a better job of carrying cash. There is a national issue of how we ensure that people who need cash always have access to it. However, on the point made by my hon. Friend the Member for Watford (Dean Russell) about whether I need to have cash to ensure that somebody will get their tip, the answer, as a result of the Bill, is no, but, none the less, they might appreciate it.

I am afraid that I really do not agree with places that have become card-only. I accept that it may be simpler for some people to pay by card—particularly younger generations, although I do not want to make an age-related comment because I know of plenty of people in their 70s and 80s who like using contactless—but we could all do a better job of carrying cash so that tips could be paid and received in it.

One way or the other, this is a hugely important Bill. I congratulate my hon. Friend the Member for Ynys Môn (Virginia Crosbie) as well as my hon. Friend the Member for Watford on the work that he did before on the Bill. Although we are talking about a small minority, we are doing an important thing to ensure that people are rewarded for the effort that they put in.

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[James Grundy (Leigh) (Con)]

I commend my hon. Friends the Members for Ynys Môn (Virginia Crosbie) and for Watford (Dean Russell) for their work on this important Bill.

It is a pleasure to follow my hon. Friend the Member for Clwyd South (Simon Baynes), who made an excellent speech. On a previous sitting Friday, I mentioned my grandmother, who was from Chirk in his constituency, and ironically, it was in that part of the world that I learned, approximately 40 years ago, what a tip was. We regularly went on holiday to Llandudno, a lovely seaside town. We were once in the tearooms close to the seafront, and my grandmother had left a 50 pence piece on the side of her teacup. I asked, “What are you doing, Grandma?” She said, “Well, this is what is known as a tip.” I was about five years old at the time, and I asked, “What’s a tip?” And she said to me, “It’s a token of thanks to the member of staff who served you. It is not a payment for the services or the food you’ve been provided with. You are thanking them for going above and beyond in the service they’ve given you.” It is tremendously important to recognise that.

As many colleagues have said—of course, this is bound up with respect for the minimum wage—tips are not there to make up wages or for other purposes. As I have said before, tips are a token of thanks, not a means of making up income. It is important to recognise that that is an entirely separate matter. I have always felt that about industries in which people receive tips.

My hon. Friend the Member for Wantage (David Johnston) said it well about America. I still remember, as will many Members, the “Reservoir Dogs” scene in which one of the main characters—one of the Misters—is asked to give a tip in a café. He quite famously says, “I don’t tip”, and there is a huge argument around the table about the culture of tipping in America. They say, “If you don’t tip then how are these waitresses going to manage? How is this fair?” I always thought that an unusual scene because, at the time that film came out, people basically felt that tips should go to the staff, but they would have considered the idea that tips were needed to make up wages pretty unpleasant.

Of course, that is why British people who go to America are regarded as absolutely terrible tippers. We do not see it as a means of making up wages, but as a token. In America, I believe that the bare minimum one should consider tipping is 10%, although I could be wrong.

[David Johnston]

It is 15%.

[James Grundy]

I thank my hon. Friend for clarifying that. I am afraid that I have never been to America, but I hope to have the opportunity to go.

As my hon. Friend the Member for Watford said, there is a difference between a tip and a service charge. It is important to consider them slightly differently. The main reason is that a tip is often voluntary, and if we feel that we have received bad service, we will simply not leave one. A tip is given to the individual who served us for their particular service—a token of thanks to them individually—whereas a service charge is, or should be, as my hon. Friend said, disbursed to the staff as a whole. Sometimes a service charge is not voluntary but appears on the bill, so it is not a personal choice. A distinction should be made on that.

Let me talk briefly about something that we have not mentioned. My hon. Friend the Member for Watford has said that further work will be done, so I hope that this will be given some consideration: any potential taxation of tips should be different from taxation of service charges. Tips are effectively gifts, which are taxed differently, so they should be considered in a slightly different manner from service charges. I realise that that is a slightly esoteric point—perhaps so esoteric that it may not have been considered in this debate or during the drafting of the provisions.

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[Richard Fuller (North East Bedfordshire) (Con)]

As is often the case on days such as this, one prepares an extensive speech only to then be given guidance that one should be brief. I shall therefore seek to rattle through a number of points relatively quickly and try to be as helpful as I can to the Minister.

I am interested in the explanatory notes. As you probably know, Mr Deputy Speaker, we had a public consultation in 2013, another consultation in 2016 and another response to the consultation in 2021, and now we are in 2023. Good Lord, eight years! Why has it taken so long? A number of colleagues have noted that there is no law on this issue, but paragraph 15 of the explanatory notes state:

“In terms of legal ownership: tips and gratuities which are paid directly to the employer…are presently the legal property of the employer.”

It goes on to say:

“Tips and gratuities which are paid in cash directly to a worker are the legal property of the worker”.

A number of MPs have mentioned the transition from cash to card. I am interested in the Minister’s view of the implications in terms of legal ownership and whether this Bill is of particular assistance.

I am interested that the impact assessment refers to the possibility for complaints to be made to the employment tribunal as a result of this legislation. Have the Minister or his team made an assessment of the likely impact? I would guess it is limited and perfunctory, but we know that employment tribunals are under a lot of pressure to get through pieces of work, so it would be helpful to dot the i’s and cross the t’s.

I am also interested in table 12, on page 26 of the impact assessment, which looks at the summary of costs by business size and provides central estimates. There is no greater champion in this House for small businesses than the Minister, so he will have noted the distribution of costs among micro, small, medium and large businesses as a result of complying with this measure. Rather than showing a nice, graduated increase in costs whereby the largest businesses take on the largest costs, the table shows that quite a lot of the cost falls on the very smallest businesses. I am interested in hearing the Minister’s thoughts on that.

I thank my hon. Friends the Members for Watford (Dean Russell) and for Ynys Môn (Virginia Crosbie) for proposing and supporting this Bill. I will end with some questions to the Minister directly about his approach to tips, on which he may wish to advise the House while speaking with his hand on the Dispatch Box. First, does the Minister tip or not? Secondly, how much does the Minister routinely tip? If someone else offers to pay for the meal, does the Minister offer to pay the tip?

[David Johnston]

Is my hon. Friend speaking from personal experience of the Minister?

[Richard Fuller]

Sadly, the Minister has never bought me a free lunch, but that is no disparagement of his character.

Does the Minister pay a tip if it is automatically applied to the bill? The other points are a little frivolous, but this is a serious point: if the automatic charge is a service charge, does the Minister pay a tip in addition? That is important because there is a lot of confusion about whether a service charge is a tip. I do not think it is, and I still do not know whether it is covered by this Bill. Has the Minister ever crossed out a service charge on a bill and not paid it? Does the Minister ever dare not to pay a tip? He might choose to give the Government’s response on all those matters rather than a personal one, but I wanted to get those questions on the record. In the interests of time, I will end my comments there.