Latest development in employment law – Allocation of tips

We are just a few weeks in from having implemented new and updated employment legislation and we have further legal developments to bring you.  This time, however, it is specific to certain industries where tips, gratuities and service charges are paid.

Introduction of the Employment (Allocation of Tips) Act 2023

Following a recent Government update this week, we are one step closer to the introduction of the new “Employment (Allocation of Tips) Act 2023” (also known as “the Tipping Act”). The announcement earlier this week by MP Kevin Hollinrake stated that the new measures are expected to come into force on 1 October 2024 once approved by Parliament.

Key features of the new law for allocation of tips

Once approved, the new law will introduce statutory rules requiring employers to manage payments in the form of tips, gratuities, and service charges (tips) from customers without deduction.

Accompanying the legislation will be new statutory guidance on how to effectively implement this allocation of tips in the form of a new Code of Practice (the current draft version can be accessed here). The Government has recently concluded a public consultation on the draft code and published their response.

Here is a summary of the key features that are currently drafted (yet to be given Parliamentary approval so are subject to change):

  • All workers are to be included for the purpose of distributing monies received.
  • Employers will be required to implement a fair and transparent way to allocate tips when the employer takes control.
  • There will be a requirement for employers to pass all tips without deductions.
  • All tips and service charges must be included, regardless of the payment method e.g. amounts added to card payments are subject to the guidance set out.
  • Any cash tips that are kept without any control of the employer will not be covered (for example tips given directly to and specifically intended for any given worker, which they aren’t required to pass to the employer for distribution).
  • Employers that regularly receive tips must have a written policy, and employers will be required to ensure that all workers (including agency staff) have awareness of and access to the policy.
  • It will not be a requirement for the same proportion of tips and service charges to be distributed to all workers, if there are legitimate reasons not to (e.g. if distribution factors include a higher proportion for front of house staff, or if it includes a consideration of hours worked on a particular day or week).
  • Employers must ensure that the factors applied in their policy for how tips are proportioned do not become discriminatory in the demographic of their workforce.
  • Employers will be able to decide how and when monies are distributed to workers, including the use of payroll, or a tronc scheme.
  • Before implementing a policy, the draft Code currently says that employers should seek to gain the broad agreement of workers before introducing the policy and rules.
  • Once the new legislation is in force, employers must keep a written record of all tips, together with details of the distribution between workers. This means recording the amount of money paid to each relevant worker. This written record must then be kept for three years from the date the tip was received.
  • Workers will have a statutory right to make one request per three months to obtain a written record of their tip allocation, backdated for up to three years (or from their start date if this is less than three years before their request).
  • Employers must therefore ensure that there is a fair process in place to respond to queries from workers who were expecting a greater payment, or who have not received the written record requested.
  • When seeking recourse, employees should use internal processes first but where these fail to resolve matters, they will be required to use Acas procedures before the final step of taking the matter to a tribunal.
  • Under the Regulations, a worker can enforce their rights through an Employment Tribunal (ET), and where an ET finds in favour of the worker they can:
    • Make a public declaration of non-compliance with the statutory guidance.
    • Issue a non-binding recommendation on the allocation of tips.
    • Order the re-allocation of tips previously received and distributed.
    • Require employers to pay compensation to workers, which may extend to other workers who haven’t made a claim.

What this means for Employers

In the spirit the legislation has been created, employers must focus on creating working practices and a written policy that promotes fairness and transparency in the distribution of qualifying tips.  This means, over the coming weeks and months, employers must begin to draft their proposed new policy and determine what working practices are required to lawfully comply with the new statutory rules, and most importantly, engage with those now, who are to be impacted by this new law.

We’re here to help

If you need advice or guidance on how your business complies with the new legislation, please contact us on 0844 324 5840 or contact us via email at [email protected].




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