Allocation of Tips Act: What You Need to Know

Danielle Lowe
By Danielle Lowe

Danielle Lowe is the Marketing Manager for ConsultingRoom.com, (www.consultingroom.com) the UK’s largest aesthetic information website. 


Mark Ronayne, Head of Payments at Phorest breaks down what’s involved in the new legislation and the potential tax implications to salon owners…

Mark, what makes you such an expert in this area?

My role involves the support of researching and developing products and features that solve real customer problems and pain points. My day-to-day role focuses on the Payments, Tax and Accountancy landscape (I even used to work for the Tax office prior to joining Phorest!) I’ve got a real understanding of how the hair industry works and I’m focused on growing salon owners’ businesses, whilst keeping ahead of industry trends and regulations – like this new tipping legislation.

So, what’s this new legislation all about?

The Act is focused on three changes for your hair team. Firstly, 100% of tips or service charges left by customers are paid directly to employees (you, the employer cannot take any deductions for admin or transaction charges for example) Secondly, the allocation is dealt with fairly and transparently. Finally, you will need to ensure that all taxes (PAYE and National Insurance) are withheld and paid on all tips.

It’s important to note that this only applies to tips that are ‘employer-received’. Typically, the tips are paid by card but if you do have a cash tip jar or do cashback, then the act also covers that, too.

How do I know who to share the tips with?

Good question and we will know more soon, hopefully. But the Government is working on a ‘Code of Practice’, which will provide practical guidance around fair allocation. This is still a work in progress. Typically, in a salon, the fair distribution of tips means tips left by a client would go directly to the service provider(s) who carried out the service on that client. Under The Act, the salon owner must have a transparent and written policy made available to employees on how the salon collects and allocates tips, and employees must be notified of any changes. You may also need a publicly displayed tipping policy for clients.

Okay, we’re getting more of an understanding now. So, is there going to be an easy system to implement all this? Seems quite a headache…

That’s where we’re coming in with our new PhorestTips system, so it’s a smooth process for salon owners. Of course, there are other options from handling tipping distribution via payroll (this will incur additional costs to you with NI payments), setting up an independent tronc (lots of admin and staff have to wait 2 months for tips), only accepting cash tips (but we know that many customers no longer carry cash!) but at Phorest, we really believe we’ve thought of everything to help you and your team out. 

Great, we’re in – tell us all about PhorestTips then…

With the new PhorestTips launching in June, you are going to be 100% compliant with the new tipping laws, your team can receive card and cash tips instantly, and there’s no additional taxes or fees to you as a salon owner.

PhorestTips will allow your business and team to accept tips on your PhorestPay Card Terminal without the need to implement a complicated and costly tronc system or worry about National Insurance contributions. Instead, tips are sent automatically directly to your employees’ accounts, without ever being received by your business. By doing so, these tips are not ‘employer-received’, thus they are exempt from the provisions of this new legislation.

What is the cost of PhorestTips?

If you already have a PhorestPay Card Terminal, then the upgrade to the new PhorestTips is free of charge, once activated. Otherwise, salon owners can speak to us about setting up their PhorestPay Card Terminal in the coming weeks.

How can we sign up?

You can sign up for early access, and we will provide more information about how you can ensure you are set up to take advantage of Phorest’s tipping distribution feature. Until then, let us take care of it, while you take care of your clients!

Learn more about the new legislation and tax-compliant PhorestTips system to benefit both salons and clients: www.salontippingcompliance.co.uk and www.phorest.com

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