The Employment (Allocation of Tips) Act 2023 came into force on 1 October 2024 (the Act). The Act makes it mandatory for all tips to be passed onto workers without deductions.

The underlying principle is that employees will receive tips, gratuities, and service charges in full, and they must be allocated in a fair and transparent way by their employer. The legislation is put in place to help combat unfair tipping practices and allow more money to be put into the pockets of the workers themselves, as opposed to the business itself also getting a cut.

This is particularly important to workers in the hospitality and catering industry where an allocation system may not have been in place previously.

What to be aware of: Employers and Employees

The Act covers all sums in which an employer exercises control or significant influence. Such sums are to be allocated fairly to workers, and eligible agency workers, no later than the following month in which the customer paid the sum. Tips received individually by workers, which do not have to go directly through the employer, will not amount to being within the employer’s control and are not subject to the rules contained in the Act. For example, if a waiter receives a specific cash tip that they do not have to hand over to their employer, they will be able to keep the full amount without any contribution to their colleagues.

The Department for Business and Trade estimates that an extra £200 million will now be received by workers which would have otherwise been held by employers.

Qualifying Tips

Section 1 of the Act defines “Qualifying tips, gratuities, and service charges” as:

  1. employer-received tips, and
  2. worker-received tips which—
    1. are subject to employer control, or
    2. are connected with any other worker-received tips which are subject to employer control.

All workers involved in directly providing service to customers should be considered when distributing tips. Employers should determine which jobs are included and justify this in their policy. For example, including a door porter in a fine dining restaurant would likely be permitted, but including a marketing manager would not.

An employer does not necessarily need to arrange the fair allocation and payment of tips itself. It may instead arrange for all or part of the qualifying tips, gratuities, and service charges to be allocated between workers by an independent tronc operator.

The Employment Rights Bill, which has just been announced by the Government, adds that employers will need to consult with trade unions or workers who are likely to be affected by the tips policy. The policy will also need to be reviewed at least every three years. This has not yet been enacted and will be subject to consultation.

Circumstances

A qualifying tip, gratuity, or service charge must be allocated between workers at the place of business where it was paid, or at least to where it was attributable. An example of this would be a restaurant chain across multiple locations; in such cases the tips are to be allocated per location, and not across the business as a whole. There is however an exception to this rule for tips paid at, or attributable to, a non-public place of business.

In a non-public place of business, for example, company headquarters (so not involving face to face customer interaction), employers will be able to allocate tips obtained the non-public place of business to multiple locations, both public and not public, provided this is fair. This allows flexibility to depart from the general rule that tips must be allocated at the location that they are obtained.

Non-Compliance

If an employer fails to provide these tips without deduction or by the end of the following month after the tip was received, the worker will be able to bring a claim at the employment tribunal.

An eligible agency worker can present such a complaint against the agent regardless of whether they are also claiming against the employer.

Claims may be presented up to 12 months from the date of the failure to comply. If there is a series of failures, the 12-month period will commence at the date of the last failure in the series. This will ensure that if an employee has not received their tips over a certain time period, they can recover this in one claim as opposed to an individual basis.

This is significantly longer than the standard 3-month limitation period for the majority of employment disputes, including unlawful deductions from wages claims. However, claimants should be aware that ACAS early conciliation must still be instigated beforehand.

Repercussions to employers for non-compliance include compensation to staff. Compensation can be up to i£5,000 to the worker, whilst the tribunal may also require the employer to revise an allocation previously made and/or make a recommendation to the employer on how they should allocate tips to achieve fairness.

The tribunal cannot however make a restitution order, e.g if the tribunal finds a revised allocation to go to the worker to be less than what was actually allocated, the worker will not be required to pay back the difference to the employer.

Conclusion

Employers should be aware that tips will need to be allocated fairly and without deduction. Fairly does not necessarily mean equally, and the employer should consider this when drafting their tipping policy (which must be a written policy) to include the relevant employees who should be entitled to a portion of the tips. Employers should be mindful of how this policy affects their public place of business and separate their policy for that of their non-public places of business.

Sources

Employment (Allocation of Tips) Act 2023 | Practical Law (thomsonreuters.com)

Government publishes non-statutory guidance for employers on distributing tips fairly | Practical Law (thomsonreuters.com)

Code of practice on fair and transparent distribution of tips (HTML version) – GOV.UK (www.gov.uk)

Millions to take home more cash as Tipping laws come into force – GOV.UK (www.gov.uk)

ukpgaen_20230013_en.pdf (legislation.gov.uk)