Fair & transparent distribution of tips

The Employment (Allocation of Tips) Act 2023 will ensure that approximately two million employees will not only have their tips protected going forwards, but will also be able to see an employer’s tipping record.

The Government has said that employees will collectively get roughly £200m back by keeping tips that in some businesses would have been withheld.

Cash tips paid directly to a worker generally become the legal property of that individual, however, payments made by card are directly paid to the employer and become the legal property of the employer.

Understanding the Employment (Allocation of Tips) Act 2023

In May 2023, the Employment (Allocation of Tips) Act 2023 received Royal Assent.  Most of the substantive provisions of the Act are not yet in force. They will come into force on a day to be appointed by the Secretary of State, which is expected to be in July 2024.

The Act’s intention is to prohibit the practice that is currently adopted by some businesses of retaining all or part of tips paid by card instead of passing them on in full to staff.

The provisions introduced by the Employment (Allocation of Tips) Act include:

• A requirement for employers to pass on 100% of tips to staff with no deductions, other than those required by PAYE;
• A statutory code of practice on tipping, setting out the rules that an employer must be aware of;
• A right for workers to request information relating to their employer’s tipping record over a specified period within the last three years;
• A requirement for employers to respond to the employee’s request within four weeks;
• A requirement for tips that are distributed via a tronc to be paid no later than the end of the month in which they were paid by the customer; and
• A right for agency workers to benefit from the Act in the same way as those directly engaged as workers or employees.

A breach of the rules will enable workers to bring a claim in the Employment Tribunal, which could result in the employer being required to revise the tip allocation to the worker and/or pay compensation.

In a bid to provide clarity and guidance on fair and transparent allocation of ‘qualifying tips’, the draft Code of Practice was published on 15 December 2023. Specifically tailored for the hospitality sector, this code aims to assist both employers and workers in understanding the intricacies of the relevant legislation. As the Government moves towards finalising the Code scheduled for release in spring 2024, it becomes imperative for employers to familiarise themselves with the key points outlined in the draft.

Key Considerations:

Applicability to All Workers
The proposed regulations extend their reach to cover all workers, encompassing permanent employees, agency staff, casual workers, and those engaged in zero-hours contracts.

Allocation and Distribution Methods
The Code delves into the methods of allocation and distribution, including the intricate system of troncs.

Flexible Proportions with Legitimate Reasons
While fairness is encouraged, the Code acknowledges that legitimate reasons may exist for varying the proportion of tips allocated to different workers. It dispels the notion that an equal split is mandatory.

Factors Influencing Distribution
The Code emphasises the need for a clear, objective, and non-discriminatory mechanism for tip distribution. Factors to consider include the type of role (front of house, back room), basic pay, individual and/or team performance, seniority, length of service, and customer interaction.

Transparency Measures
Employers are mandated to adopt transparency measures, including the creation of a written tipping policy. This policy must be accessible to all staff, and accurate tipping records must be maintained for a minimum of three years.

Consultation with Staff
To ensure fairness and broad agreement, employers are encouraged to engage in meaningful consultations with their staff regarding the distribution of tips and review this regularly.

The Government has committed to releasing the final version of the Code in the Spring. We will keep you updated with the developments.

Hospitality employers are encouraged to begin taking steps to prepare for their implementation, including introducing practice arrangements to ensure fair allocation and distribution of tips, preparing a written policy regarding tip allocation and distribution, arranging for record-keeping of tips, and ensuring internal processes are in place to deal with queries or complaints.

Please note that this information is for general guidance only and should not substitute professional legal advice. If you have specific concerns, we recommend consulting with one of our legal experts.