Government backs new law on tips ensuring fair distribution & protection for employees

The Employment (Allocation of Tips) Act 2023 has received Royal Assent and will ensure that approximately two million employees 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

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.  

While there is currently no confirmation as to when the new legislation will come into force, it is expected to be announced later this year, with the Act likely coming into force in 2024. The associated Code of Practice will also be drawn up this year following a formal consultation.  

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.