New Laws on Tipping – What you need to know

The Employment (Allocation of Tips) Act 2023 and its accompanying statutory Code of Practice  comes into force on 1^st  October 2024, after being delayed from 1^st  July 2024.

The objective of the Act is to improve fairness for workers by ensuring that the tips consumers leave in recognition of good service and hard work are given to the workers as intended.

The Act and Code of Practice concern ‘employer-received tips’, which involve tips paid by a consumer to the business/employer directly, which are then allocated and distributed to workers by the employer. This covers all tips, gratuities and service charges which an employer exercises control or significant influence over. In this article ‘tips’ refers to all qualifying tips, gratuities and service charges.

However, the Act and Code of Practice do not cover ‘employee-received tips’. This is where the tips are paid directly to the employee, and the employer has no control over how the tips are distributed, for example, if a customer pays an employee a cash tip and the employee is entitled to keep that money for themselves.

Key features of the Act and Code of Practice include:

• Employers are required to pass on tips in full to workers (including eligible agency workers) except in very limited scenarios, such as deduction of income tax. Employers will not be able to use tips to cover costs associated with the allocation of tips, such as fees incurred when a tip is paid by credit card.
• Tips must be allocated in a fair and transparent way.
• Payment to employees must be made in full within one month following the month in which the tips were paid by the customers. Employers will no longer be able to retain tips and pay them throughout the year.
• Employers of businesses where tips are left on more than an occasional and exceptional basis  are required to have a tipping policy in place which must include the following information:
  • whether customers are required or encouraged to pay tips
  • how the employer ensures tips are dealt with and distributed between workers.
• Employers must ensure staff are given a copy of the tipping policy (this can also be shared with customers but it is not a requirement of the Act).
• Employers are required to maintain a record of how every tip has been dealt with for three years from the date the tip was paid; noting
  • the amount of tips paid
  • the amount allocated to workers (including via an independent tronc operator).
• Workers have a right to request a copy of their tipping record in order to enable them to bring a claim to employment tribunal where they believe they are not receiving tips they should be.
• Employers must have regard to the new statutory Code of Practice when distributing tips.
• It is noted that further non-statutory guidance will be published in due course to accompany the Code of Practice. 

What is fair allocation?

If fair procedures are not followed, employees may pursue a claim in the Employment Tribunal. But what is ‘fair allocation’?

The Code of Practice sets out that distributing tips fairly does not require employers to allocate all eligible works with the same proportion of tips. If an employer decides to allocate tips in different proportions, care must be taken to avoid direct or indirect discrimination.

Employers should use a clear and objective set of standards to justify the allocation of tips. This will depend on the type of business and how it conducts its business. Suggested factors to take into consideration include:

• Type of role/work.
• Basic pay and how workers are employed/engaged.
• Hours worked during period when tips are received.
• Individual and/ or team performance.
• Seniority/level of responsibility.
• Length of time served with the employer.
• Customer intention.

Tipping Record Requests

A worker has the right to make one written request in a three-month period to view their tipping record for a backdated period of up to three years (provided they worked for the employer for the full duration of the requested period). If a request is made, the employer must provide:

1. the amount of qualifying tips paid at, or otherwise attributable to, the place of business;
2. the amount of those qualifying tips that the employer allocated to the worker; and
3. the amount of those qualifying tips that the employer arranged to be allocated to workers of the employer at the place of business by an independent tronc operator.

Specific amounts paid to other workers must not be disclosed during this process.

Tribunal

Where the Tribunal finds a complaint about fairness or transparency in tipping well founded, it can make a declaration to that effect. It can also order the employer to revise a previous allocation of tips, make a non-binding recommendation regarding that allocation of tips, or order the employer to pay a worker or workers compensation (not exceeding £5,000 as the Tribunal considered appropriate in all the circumstances). This can include other workers at the relevant place of business who have not made a complaint to the tribunal.

This is only intended to be a summary and not specific legal advice. If you would like further information,  advice or assistance in drafting a tipping policy, please do contact a member of our team.

Selene Holden (seleneholden@greene-greene.com ~ 01284 717436)
Greg Jones (gregjones@greene-greene.com ~ 01284 717446)
Angharad Ellis Owen (aeo@greene-greene.com ~ 01284 717453)
Katie Harris-Wright (katieharris-wright@greene-greene.com ~ 01284 717442)