The Employment (Allocation of Tips) Act 2023, which received Royal Assent on 2 May 2023, is set to come into force on 1 October 2024. This Act introduces significant changes to how tips, gratuities, and service charges are handled in the hospitality and leisure sectors. The primary aim is to ensure that workers receive tips in full and that these are allocated fairly and transparently. The Act is supported by a new statutory Code of Practice, which also comes into effect on the same date.
Key provisions of the Act
Full allocation of tips: Employers must ensure that all tips paid by customers on or after 1 October 2024, over which the employer exercises control or significant influence, are allocated fairly to workers, including eligible agency workers. Payment in full, less deductions required by law such as tax and National Insurance Contributions (NIC), must be made no later than the end of the month following the month in which the customer paid the tip.
Written tipping policy: Employers are required to have a written tipping policy that sets out key information about the allocation and distribution of tips in clear, plain language. This policy must be disseminated to all workers, including agency workers, and must be updated regularly.
Record keeping: Employers must keep records of all qualifying tips received and the amount allocated to each worker for three years. Workers have the right to request these records, and employers must provide them within four weeks of the request.
Fair allocation and distribution
The Code of Practice provides overarching principles on what constitutes fairness in the allocation and distribution of tips. Employers are not required to allocate the same proportion of tips to all workers but must use clear, objective, fair, and reasonable factors to determine the allocation. These factors may include:
Type of role/work (e.g., front of house vs. backroom workers)
Basic pay and how workers are engaged
Hours worked during the period when tips are received
Individual and/or team performance
Seniority/level of responsibility
Length of time served with the employer
Customer intention
Use of tronc schemes
Employers can choose to allocate and distribute tips using a tronc scheme, which is a common practice in the hospitality sector. An independent tronc operator, such as an external accountancy firm or a payroll business, can manage the distribution of tips. The principles of fairness and transparency still apply, and the employer must ensure that the tronc is operating independently and fairly. If the employer becomes aware of any unfair or improper practices by the tronc operator, they must take action to rectify the situation.
Addressing issues and Employment Tribunal claims
Employers must implement fair processes for resolving issues and responding to queries regarding the allocation of tips. Workers, including agency workers, can enforce their rights through the employment tribunal system. The tribunal can make a public declaration that the employer has failed in its obligations, order the employer to revise a previous allocation of tips, and order compensation of up to £5,000 for any financial loss suffered.
Additional considerations
Agency workers: The Act provides specific obligations and rights regarding agency workers. Employers must ensure that agency workers receive their fair share of tips, and any terms with agencies should give sufficient commercial protection to enforce compliance.
Transparency and communication: Employers must clearly inform each individual worker of their entitlements in line with the applicable tips policy and be able to evidence that they have done so. The policy must be written in plain language and provided in an accessible format for disabled workers.
Non-compliance risks: Non-compliance with the new regulations could lead to significant financial and reputational risks for businesses. Employers found to be non-compliant may face claims in the Employment Tribunal, which could result in compensation orders and adverse publicity.
Employers should take immediate steps to review and update their tipping policies, consult with staff, and ensure that all practices are in line with the new requirements to avoid potential legal and financial repercussions.
Further reading
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