Employers who receive tips, including service charges and gratuities, into their business are under an obligation to pass 100% of them onto their staff in a fair and transparent way under rules effective from 1 October 2024.

In this scenario, we examine the implications for a small business. My client operates several beauty salons, offering various treatments such as manicures and facials. With increasing regularity, the beauty therapists have been offered tips from their customers for their work, which my client does not get involved with – they are paid directly to the therapist without my client’s intervention.

Now, they are considering adding a small, discretionary, service charge to their fees so that more of their therapists have an opportunity to receive tips, but they are unsure of what the law says about dealing with these payments.