What Is the Employment Allocation of Tips Act 2023?
To ensure fair treatment of hospitality workers and transparency in tipping practises, the UK government passed the Employment (Allocation of Tips) Act 2023. Set to come into effect on 1 July 2024, this act requires all qualifying tips, gratuities and service charges be passed to workers without unfair deductions.
In this article, we’ll cover the implications of this Act for merchants and how this Act created a unique opportunity for ISOs and other payment providers, including ISVs and PayFacs, to add value for their merchant customers while helping them comply with these new regulations. A similar act is expected to be adopted soon in other European countries including Ireland, Germany and France.
Understanding the Act
The recent legislation, responding to a long-standing controversy around tipping practises, requires employers to distribute tips fairly among all employees. This involves maintaining detailed records of tip distributions and ensuring timely payments by the end of the month following the customer’s payment, directly to the waiters’ accounts.
Challenges for Merchants
Many merchants in the hospitality industry, still recovering from the pandemic and inflation’s economic effects, now face the added challenge of aligning their practises with the new tipping rules. The act prohibits employers from withholding tips or applying them as deductions against other costs, such as administrative fees or bank charges.
Opportunities for Partners
For current and prospective payment providers, this presents a significant opportunity to assist merchants in adapting to these changes. By integrating Rapyd’s Global Accounts and Card Issuing capabilities with Rapyd’s Card Acquiring services, ISOs can offer a seamless end-to-end solution that not only ensures compliance but also enhances operational efficiency. With Rapyd’s flexible Virtual Accounts, merchants can create dedicated accounts for each tipped worker, simplifying bookkeeping and compliance by allocating the tipping amount directly to the waiter’s account. This provides a value add and additional revenue opportunity for existing partners. For prospective payment providers, it provides a unique capability that can help set them apart for competition.
- Automated Tip Distribution: Using Rapyd Global Accounts, Issuing and Disburse solutions, partners can provide infrastructure that allows merchants to create sub-accounts for employees within their payment systems. This setup can automatically allocate tips to these sub-accounts, ensuring fair distribution and adherence to the new regulations.
- Transparent Record-Keeping: With Rapyd, merchants can easily maintain transparent records of all tip transactions. This functionality is crucial for compliance, as the act requires employers to keep detailed tipping records and respond to employee requests for this information within four weeks.
- Enhanced Employee Satisfaction: By ensuring timely and fair tip distribution, merchants can improve employee satisfaction and retention. This is particularly vital in the hospitality sector, where employee turnover can be high.
- Additional source of Revenue: ISO’s will earn residual revenue from the additional movement of funds to and from the waiters’ accounts and from the use of the issued debit cards.