The Employment (Allocation of Tips) Act 2023 (the “Tipping Act”) comes into force on 1 October 2024. The Department for Business and Trade has recently published its Code of Practice on the Fair and Transparent Distribution of Tips (the “Code”), which also has effect from that date.
The Code provides useful guidance for employers when implementing the Tipping Act. The Code is not legally binding, so a breach of the Code will not necessarily result in a breach of the Tipping Act. However, Tribunals will take into account any breach of the Code when assessing whether an employer has acted in compliance with the Tipping Act.
The Tipping Act – a quick summary of new obligations on employers
The Tipping Act amends the Employment Rights Act 1996 to create statutory requirements on employers when allocating tips, gratuities and service charges (collectively referred to as “tips” in this article) to workers.
In summary, employers will be required to:-
- Pass on all tips to workers (including agency workers) without deductions (save for in very limited circumstances such as deductions for income tax);
- Ensure that all tips are distributed in a fair and transparent manner;
- Pay tips to workers by the end of the month following the month in which the tips are paid by customers;
- Have a written policy on how tips are dealt with and ensure that the policy is made available to all workers;
- Maintain a record (for 3 years) of all tips paid to each worker. Workers will have a right to request access to this record – limited to one request per worker in a three month period;
- Workers can bring a claim in the Employment Tribunal for failure to comply with the Tipping Act.
For further information on the Tipping Act, please refer to our earlier article New Tipping Legislation on its way.
Key take aways from the Code
1. Qualifying Tips and Qualifying Workers
- The new provisions only apply to “qualifying tips”. The determining factor in whether a tip is “qualifying” or not is whether the employer receives or exercises control or significant influence over the distribution of tips.
- The Tipping Act will always apply where an employer receives the tips (e.g. by card payments or apps) and then allocates them to workers. The Tipping Act will also apply to situations where the worker receives the tips but the employer has a rule or policy that all tips must be pooled together and distributed at the end of a shift or as part of payroll.
- “Tips, Gratuities and Service Charges” can include a non-monetary tip which has a fixed cash value (such as a casino chip or voucher).
- The Tipping Act will not apply to cash tips received by a worker if the employer has no control over the distribution of the tip i.e. where the workers receives and keeps the tip.
- The Tipping Act applies to all workers, including agency workers (but not self-employed people).
2. Fair allocation and Distribution
- Employers can promote fairness by ensuing that all workers are aware and have access to the employer’s written tipping policy.
- Fair allocation of tips does not require employers to allocate the same proportion of tips to all workers – however, employers should be transparent on why allocations may differ and give due consideration to all of the workers involved in providing services to customers.
- Non-exhaustive factors that employers may take into account when allocating tips include (i) type of role, (ii) basic pay, (iii) hours worked during period of when tips are received, (iv) individual/team performance, (v) seniority/level of responsibility, (vi) length of service and (vii) customer intention.
- Employers should take care to avoid discrimination when determining and applying factors for allocating tips and particular consideration should be given to whether the employer’s tipping policy or practice is indirectly discriminatory i.e. where the policy places people with a particular protected characteristic at a disadvantage.
- Employers should consult with workers to seek broad agreement in the workplace that the system of allocation if tips is fair, reasonable and clear. This does not impose an obligation on employers to consult with workers or to reach an agreement on the policy proposed, however, the Code recommends consultation as a way to minimise the risk of discrimination.
3. Methods of Allocation of tips
- Employers can choose to receive and allocate tips directly to workers.
- Employers can use a tronc to allocate and distribute tips, but they must maintain independence when it comes to handling tips. This means that employers can either continue to have a member of staff as troncmaster as long as they are able to act independently or use an external payroll or accountancy firm as tronc operator. However, it is worth noting that if the employer becomes aware that the tronc operator is not acting fairly, they are obliged to address this in order to maintain a fair allocation of tips.
4. Transparency
- Employers must have a written policy for tipping and workers must be aware of their entitlements in line with the employer’s policy.
- All staff should have the same access to the same policy. The policy must be written in plain language and employers must provide an accessible format for any worker with a disability, on request.
- Employers must keep a written record of tips for 3 years and the worker may request access to this record. Employers must comply with the UK GDPR and Data Protection Act 2018 when processing personal data, so responses to a request for a written record of tipping should relate only to the worker making the request and not to all workers at the business.
5. Addressing Problems
- Workers can enforce their rights via the Employment Tribunals.
- Employment Tribunals will take into account the Code when determining whether there has been a breach of the Tipping Act.
- Amongst other sanctions, Employment Tribunals will be able to make a public declaration of non-compliance and award compensation to all affected workers (not just the Claimant).
It should also be noted that, unlike most employment tribunal claims which must be brought within 3 months of the act complained of, claims about how and when tips must be dealt with can be brought within 12 months of the failure to comply.
If you have any questions or would like advice regarding you tipping practices or policies, please do not hesitate to contact a member of our Employment Team.