Top Tips for your business – The Allocation of Tips Act 2023 and Code of Practice
Coming into force on 1 October 2024, these new rules require employers to ensure all tips, gratuities and service charges are allocated fairly and transparently between their workers, including eligible agency workers.
The Tips Act
The key features of the Tips Act are as follows:
- it protects workers, not just employees
- it covers all “tips, gratuities and service charges” over which an employer exercises control or significant influence
- it applies to tips paid by customers on or after 1 October 2024
- employers have a duty to ensure that all qualifying tips, gratuities and service charges are allocated fairly to workers and to make payment in full no later than the end of the month following the month in which the customer paid the tip
- if it is fair to do so, the employer may arrange for all or part of the qualifying tips, gratuities and service charges to be allocated between workers by an independent tronc operator
- failure to comply with the statutory Code of Practice will be admissible in evidence in employment tribunal proceedings and tribunals will be required to take it into account
- the definition of “wages” (under section 27 of the Employment Rights Act 1996) is amended by the Tips Act, such that a failure to pay qualifying tips, gratuities or services charges may constitute an unlawful deduction from wages
- workers will have 12 months from the date of the failure to comply within which to bring a claim against the employer
Code of Practice
A Code of Practice has been published to provide employers some guidance within the tipping industries. The guidance provides for fair (and lawful) distribution of tips.
In summary, the code:
- Confirms that employers must acknowledge agency workers when divvying up the tips
- Confirms that employers are responsible for confirming what tip allocation is appropriate for different roles (it need not be the same for everyone), and are responsible for justifying the reasons for this;
- Gives a summary of what a tipping policy should contain, and a tipping record template
- Reminds employers that failing to fairly distribute tips and failure to supply tipping information can lead to a possible employment tribunal claim.
These changes are particularly relevant to those in the hospitality sector. Around 80% of tipping now happens via card payment and the Tips Act will regulate this.
Who will be affected?
The Tips Act protects workers and not just employees. It is predicted that the Tips Act could affect about 2 million workers in the hospitality sector. It is common for these workers to be on minimum wage, with their tips being a significant part of their overall earnings. It is important to note that tips cannot count towards the National Minimum Wage.
If a worker receives a cash tip and keeps it, that is out with the scope of the Tips Act and the Code, as the employer has no control or involvement in it.
What is required of an employer?
The Tips Act requires employers to
(1) have a written policy on tipping where tips are paid at least occasionally to staff, setting out guidelines for fair allocation, and
(2) keep records of the allocation of tips for a period of three years beginning with the date on which the qualifying tip, gratuity or service charge was paid. Workers will have the right to access this information.
An action for unlawful deduction of wages claim could be brought against an employer who fails to pay tips in line with this Act. There is a 12-month time limit for these claims, which is significantly longer than most Employment Tribunal claims!
Where an employer is found liable, an employment tribunal will have the power to order an employer to:
- revise the allocation of tips (and may make a non-binding recommendation regarding the allocation); and
- make a payment to a worker or workers (not just to the claimant).
The Tribunal may also order the employer to pay compensation of up to £5,000 for financial loss suffered by the Claimant as a result of the breach.
Top tips!
First step; consider if you will be directly impacted by the new tips law. If so, you should create a tipping policy and a tipping record. If you already have a tipping policy in place, now is the time to review your existing policy and procedures, and ensure all managerial staff are aware of the new requirements and how to apply them.
You may wish to instruct an independent tronc operator to deal with the allocation of tips, but beware – you will be responsible for ensuring full compliance with this!
How can we help?
At BTO Solicitors our expert employment lawyers can offer legal advice on this issue. For further information on the services we can provide, contact our office on 0141 221 8012 or email employmentlaw@bto.co.uk.
Annabel Scott, Solicitor: asc@bto.co.uk / 0141 221 8012 / Connect with Annabel on LinkedIn
Maia Campbell, Trainee Solicitor: mcb@bto.co.uk / 0141 221 8012 / Connect with Maia on LinkedIn
