The allocation of tips is governed by the Employment (Allocation of Tips) Act 2023 and its accompanying statutory Code of Practice. These are due to come into effect on 1st October 2024.
The aim of this legislation, and the accompanying Code, is to ensure that workers in sectors where tipping is common, particularly hospitality and services, receive a fair share of the tips left by customers. It seeks to address long-standing issues around the distribution and allocation of tips, gratuities, and service charges, ensuring transparency, fairness, and legal certainty for workers, employers, and consumers alike.
Key Provisions
The Act contains several important provisions that set out the legal obligations of employers regarding the handling and allocation of tips.
To support its implementation the statutory Code of Practice provides guidance to employers on how to comply with the new legal requirements and to promote best practices in the allocation of tips.
Below are the key elements of both the legislation and the guidance:
Fair Distribution of Tips
The core objective of the Act is to ensure that tips, whether paid in cash or by card, and including those operated via a TRONC system, are allocated fairly and fully to workers. Employers are prohibited from retaining any portion of the tips intended for workers, ensuring that these amounts are passed on without deductions, unless there are lawful exceptions such as tax obligations.
The Code outlines what constitutes a fair allocation of tips. While employers have some discretion in determining how tips are distributed among workers, the Code encourages the adoption of transparent, equitable systems. For example, tips might be allocated based on the number of hours worked, the role played in service delivery, or a combination of factors that reflect the contributions of different workers.
Service Charges and Discretionary Payments
Service charges added to customer bills, which are often perceived as compulsory tips, are also covered by the Act. Employers must treat these payments in the same way as tips or gratuities, ensuring they are allocated fairly to staff. This provision eliminates practices where businesses retain service charges without distributing them to employees.
Transparency and Record-Keeping
Employers will be required to maintain detailed records of how tips are collected, distributed, and allocated to workers. These records must be kept for a minimum of three years. Workers will have the right to request access to these records once every three months to ensure transparency and verify that they are receiving their rightful share of the tips. If a worker makes such a request, an employer must comply with this request within four weeks from the date it was requested.
Transparency is a central theme. Employers are encouraged to openly communicate their policies on tipping to both workers and customers. For workers, this means clear documentation and access to the record keeping. For customers, businesses are advised to display information about how tips are distributed to ensure customers are confident that their gratuities are going to staff.
Agency Workers
The Act makes provisions for agency workers who are employed through third-party agencies but work in businesses where tipping is common. Agency workers are entitled to a fair share of tips in line with their employment arrangements and must be treated similarly to directly employed workers. These tips may be made by the hirer to the employment agency, who in turn would be responsible for passing these on to the agency worker, without unauthorised deductions.
Involvement of Workers in Tip Policies
The Code emphasises the importance of worker involvement in the development of tip distribution policies. Employers are encouraged to consult with employees and take their views into account when deciding how tips will be shared. This promotes a sense of fairness and ensures that workers have a say in how their earnings from tips are managed.
Worker Complaints and Enforcement
If workers believe they have not been treated fairly under the provisions of the Act, they can raise complaints with their employer. In cases where the issue is not resolved internally, workers can take their complaints to employment tribunals. Employers found to be in breach of the Act could face legal sanctions, including compensation claims from affected workers.
The Employment (Allocation of Tips) Act 2023 and its accompanying statutory Code of Practice represent a significant step toward ensuring fairness and transparency in tipping practices across the UK. This legislation will have a substantial impact on employers and workers in tipping industries, particularly hospitality and services. By guaranteeing that tips are fairly distributed and providing clear guidance on how businesses should manage tips, the Act aims to protect the rights of workers and maintain public confidence in tipping as a form of recognition for good service. The Code of Practice can be found here and Wirehouse are available to support with any necessary policy documentation.
