Tipping POINT

As legislation in the UK is approved to protect gratuities for workers, ALEX FOX explores the attitudes of business owners towards tips

What do salon owners say?

Scratch quizzes finalists in the Scratch Stars Awards 2024 salon categories about their thoughts on tipping and the legislation.

In a landmark move, the UK government has passed legislation to safeguard the rights of employees across various sectors, ensuring they receive their fair share of tips and gratuities. The Employment (Allocation of Tips) Act 2023, which recently achieved Royal Assent, marks a significant step towards ending the practice of employers withholding tips from employees.

Under the provisions of this new law, more than two million workers across the hospitality, leisure, salon and services industries will benefit from enhanced protection for their tips. Employers will be prohibited from deducting service charges from their employees’ earnings, ensuring that staff members receive the tips they rightfully earn from providing excellent service to customers.

The legislation, coming into force on 1 July 2024, aims to address longstanding concerns regarding unfair tipping practices. Many in the hospitality sector rely on tips to supplement their income, yet often find themselves at the mercy of employers who fail to pass on service charges collected from customers.

Business and trade minister, Kevin Hollinrake MP, emphasises the importance of ensuring that employees receive their fair share of tips. “As people face rising living costs, it’s not right for employers to withhold tips from employees,” he comments. The enactment of this legislation reflects the government’s commitment to supporting workers and ensuring fairness in the workplace.

Lucy Price-Marshall, salon manager at Nailspa, Huddersfield

“At Nailspa, we are transparent with clients and employees when it comes to tipping. We’ve streamlined our tipping process, to make administration much easier for the business, by implementing a tipping platform featuring a QR code. Clients can scan it to tip a team member directly. They have the flexibility to choose the tip amount and recipient staff member, and decide whether to cover the transaction fee. This approach ensures fairness for all involved.”

www.belindapricenailspa.co.uk /Nailspa Huddersfield @nailspahuddersfield

The law not only protects workers’ rights, but promotes transparency and accountability in tipping practices. Employers will be required to have a written policy governing the treatment and allocation of tips, ensuring that distribution is conducted in a fair, transparent and consistent manner. Additionally, employees will have the right to request information about their employer’s tipping record, empowering them to bring forward credible claims to an employment tribunal if necessary.

The Employment (Allocation of Tips) Act 2023 represents a significant victory for workers’ rights. By ensuring that tips and gratuities go directly to employees, the government is taking proactive steps to address issues of inequality and exploitation in the workplace. As the legislation comes into effect, it is expected to bring about positive changes for millions of workers and contribute to a fairer and more equitable working environment in the UK.

Thanh Vu, MD of Dream Nails salons, London & Essex

“At Dream Nails salons, tips have always gone directly to the appropriate staff member. I believe in incentivising top-notch services from start to finish, and do this by paying staff a good wage and ensuring that any money generated through tips from their exceptional skills and customer service ends up in their own pocket.

“Passing on 100% of tips ensures staff accountability and fosters an environment in which staff members compete with one another for the best tips at the end of each day. From my perspective, this is extremely positive as it encourages technicians to maximise tips by delivering a great service, ultimately benefiting my salon business.

“Having worked in the nail industry for over 20 years, I’ve observed an increasing inverse correlation between card payments and tips. As the prevalence of card payments has risen, the amount of tips relative to the treatment value has decreased. Perhaps this is due to the misconception that tips don’t go to staff, which is not the case at Dream Nails. Despite clients often paying via card, our technicians are frequently tipped directly in cash. We remain indifferent to the form of payment as long as the hard work of the staff is appreciated.

“Considering there is a fair playing field and everyone is adhering to the rules, we believe the new legislation is positive. Staff are rewarded for delivering good treatments, and they receive all of the benefits as a result. On the other hand, I appreciate that businesses may raise concerns about the administrative practicalities of ensuring that every staff member receives the correct tip amount. However, with the volume of card payments received and tech systems available, this should become increasingly straightforward for businesses.

“I would also like to stress that administrative costs should not be passed on to staff. For example, imagine a client pays £30 for a treatment and tips £3. Typically, a card processing company will charge 0.5% to 1%. Zettle PayPal, for instance, charges 1%. Therefore, the cost to the business of processing the £3 tip is £0.30. Some businesses may view this as a direct cost. However, looking at the bigger picture, I would argue that the £0.30 (essentially subsidised by the business) is a small price to pay for a happy customer who has tipped their nail tech and is likely to return.

“It’s important for the nail and beauty industries not to follow the same route as the food and beverage industry. We must avoid the practice of relying on tips to make up wages. Instead, we should pay fair wages, and tips should be purely discretionary to reward good performance.

“When a business’ employee is tipped voluntarily by clients, it reflects a conscientious staff member and leads to repeat customers. This ensures staff happiness and retention in the long term, which is crucial for sustainable business success. We must prioritise long-term considerations over short-term profits, as many blue-chip companies do with their shift to quarterly reporting.”

www.dreamnails.co.uk Dream Nails and Beauty @dream.nails_x @dream.nails_x

Juanita Huber-Millet, founder of Townhouse salons, UK & LA

“Townhouse wouldn’t exist without its team members and so since the company was founded, there has been a policy to ensure that 100% of tips left by customers go directly to the team, with Townhouse paying any credit card fees or similar. We fully support any legislation that improves team member wellbeing and transparency.”

www.mytownhouse.co.uk /mytownhouseuk @mytownhouseuk @townhouse

“We use a card terminal, which has increased efficiency and seen staff tips soar. Most team members receive £20 to £80 per week in just card tips, and that doesn’t count what we take in cash.”

Natasha Barker, CND™ education mentor & owner of Niche Nails & Beauty in Witney, Oxfordshire

“The changes in tipping legislation are a welcome development for my salon. With the increasing preference for card payments among clients, it’s imperative to ensure fairness for all parties involved. Thankfully, the system provider I utilise has streamlined the process for me as an employer and now, tips can be seamlessly directed to staff members at the point of payment, and comprehensive yearly reports can be generated for each employee to facilitate their tax obligations. This not only saves me valuable time each month, but eliminates the need to calculate individual tips, deduct transaction costs and include them in wage slips.

“I strongly believe that this new system will foster a fairer environment within the salon, empowering staff to monitor their tips and incentivising them to maintain exceptional standards of work. Moreover, considering that a transaction fee is incurred by the business, regardless of whether a tip is given or not, it’s only fair that this cost isn’t deducted from the tip itself. Instead, the entire amount should rightfully go to the deserving team member.”

www.nichewitney.com /niche.nb @nichenailbeauty

Margaret Dabbs OBE, CEO & founder of Margaret Dabbs Foot Clinics, UK, UAE & Spain

“From the opening of the first Margaret Dabbs Foot Clinic in Marylebone, London, almost 15 years ago, each staff member has taken 100% of the tips they have received, which are awarded for good customer service. Our nail technicians get paid a very fair salary and hourly rate, and their tips are additional and do not make up their salary. We embrace and welcome the legislation as a significant advancement for employees nationwide.”

www.margaretdabbs.co.uk /MargaretDabbsLondon @margaret_dabbs_london

Erin Adeyemo, owner & salon manager at Tweezers Beauty, Bedworth, Warwickshire

“As a salon owner, I strongly advocate for team members to receive 100% of their tips. It not only boosts individual morale, but serves as a personal acknowledgement from clients for their exceptional service.

“Currently, Tweezers Beauty has an established tipping system in place: cash payments are distributed to staff daily, while card payments are transferred weekly via our software system. However, the legislation concerning tips could cause complications and hindrances to our payroll systems.

Here are a few reasons why:

• Time-consuming: Implementing the new law will require additional time each week to calculate tips and assess tax liabilities.

• Increased costs: Employers will incur extra expenses related to taxes on tips received, including PAYE and National Insurance contributions.

• Transactional fees: By processing tips through our system, we’ll lose out on transactional fees, such as card charges.

• Higher turnover: With tips flowing through our system, our yearly turnover will rise, leading to increased tax liabilities and expenses.

“These factors may discourage employers from accepting tips through their system, whether cash or card, under the new tipping law. If tips were directly paid to staff members, they would be responsible for staying compliant and reporting their tips to HMRC. While we anticipate adjusting to the change once it takes effect, it adds another task to the already extensive list of responsibilities for business owners.”

www.tweezersbeauty.co.uk /tweezersbeauty @tweezersbeauty

THE NEW TIPPING RULES

A breakdown courtesy of www.wearetipjar.com

• Tips collected in a month must be disbursed by the subsequent month’s end.

• Employees have the right to demand tip reports.

• Using the tronc pot (a pool into which workers pay their tips) to fund the tronc system of distribution, will be redundant.

• Tribunals can now grant restitutions concerning tip discrepancies.

• A new code of practice will oversee tip distribution, emphasising on-site team members engaged in the customer experience.

A handy tool for tip receipts

As explained by Mark Ronayne, head of payments at Phorest Salon Software.

“Government statistics reveal that a staggering 80% of tipping in the UK happens via card payments. This shift poses a significant challenge for stylists and therapists, as if they lack a suitable card system for clients who ‘don’t have any cash’, they may see a 25% drop in earnings.

“To address this issue, salon CRM system, Phorest, has introduced a straightforward digital solution for both salon owners and customers. This ensures that employees can seamlessly receive tips in compliance with the Employment (Allocation of Tips) Act 2023.

“The new UK legislation, known as the ‘Tipping Act,’ brings two crucial changes for salon employees: 1. 100% of tips or service charges left by customers must be paid directly to employees, with employers prohibited from making any deductions for administration or transactional charges. 2. The allocation of tips is handled transparently and fairly, with a code of practice available to all employees, and all tips are now taxable.

“Moving forward, instead of tips being pooled into a collective pot, employees can receive their tips directly into their bank accounts through the PhorestTips system. In the professional industry, where employees rely heavily on tips, this direct system ensures that employees receive their tips promptly, while safeguarding salons from tax liabilities.”

www.phorest.com /phorestsalonsoftware @phorestsalonsoftware

Benefits of the PhorestTips system

• PhorestTips allows businesses and staff to accept tips seamlessly on the PhorestPay Card Terminal, eliminating the need for tronc systems and QR codes.

• Employees remain tax compliant and can access records of their tips throughout the year, ensuring compliance with income tax laws.

• This streamlined system serves as a powerful incentive to boost earnings. When customers pay for services via a PhorestPay Card Terminal, they can easily add a tip for the employee of their choice, which is immediately transferred to their personal bank account.

• Phorest’s trial of the new system demonstrates that employees receive 25% more tips through PhorestPay Terminals, reflecting the growing trend away from cash payments. This not only means increased tips, but reduced stress and enhanced staff retention.

“PhorestPay Card Machines have been a great decision for us as a Phorest salon. The option for clients to add staff tips to their bill has proven very beneficial for our team members, as they have all benefitted from a generous increase in tips.”

Geraldine Ping, director of Pebble Beauty Sanctuary, Hitchin, Hertfordshire