Bulletins | July 21, 2023

New Tipping Legislation on its way

The Employment (Allocation of Tips) Act 2023 (“the Act“) has now completed the parliamentary process and is expected to come into force at some point in 2024 (most likely in May).

The Act is a response to widespread concerns about the treatment and lack of transparency around workers’ tips that gained momentum in 2015 following media reports of unfair tipping practices by major restaurant chains and other hospitality outlets.

At present, workers only have the right to retain cash tips (unless the terms of their contract of employment say otherwise). Payments made by card go directly to the employer, at which point they are free to make deductions (for example for service or administration charges) before passing tips on to their employees. According to the government, approximately 80% of all UK tipping now happens by card, and this percentage is only likely to increase as more and more customer facing businesses go cash-free.

Changes to Tipping Practices

The Act will insert more than 20 new sections into the Employment Rights Act 1996 (“ERA“) to create a statutory obligation on employers to allocate tips, gratuities and service charges to workers (including agency staff) without deductions. This will not interfere with cash tips or tips informally pooled by workers themselves.

Employers will have to ensure that the total amount of qualifying tips is allocated “fairly” between workers. A new statutory Code of Practice will be developed, in conjunction with Acas, to provide guidance to employers on what amounts to a fair allocation.

The Act will also introduce a new right for workers to request information about their employer’s tipping record. Affected employers will also be required to keep records of their tipping practices for at least three years beginning with the date on which the tips were paid. In addition, where tips are paid on more than an occasional and exceptional basis, employers will be required to have a written policy in place.

Employees will have the right to bring a claim if their employer has failed to comply with these new obligations. Slightly unusually, employers should note that claims relating to the allocation of tips can be brought up to 12 months after the alleged failure took place. This is perhaps surprising given the three month time limit for most other employment related claims, including a standard unlawful deductions from wages claim.

The Employment Tribunal will have a range of powers, including the ability to order employers to revise the allocation of tips, or to make a payment to one or more workers. Employers could be ordered to pay up to £5,000 in compensation. The new entitlement to complain about unfair distribution of gratuities will count as a statutory right protected from retaliation or termination, so if an employee is subjected to bad treatment and/or dismissed for complaining about their employer’s tipping practices, they may be able to bring an automatic unfair dismissal claim, which does not require two years of service, like ordinary unfair dismissal claims.

What about TRONCs?

Currently, many tips, gratuities and service charges are distributed via special pay arrangements known as “troncs” and the person or organisation responsible for administering the tronc is known as a “troncmaster”. The troncmaster is often one of the employees themselves but can also be outsourced to an external and independent provider.

If your employees receive tips, it would be worth exploring options with a professional provider because pursuant to the Act, where an employer makes arrangements for the total amount of the relevant tips to be allocated by an independent tronc operator and it is fair for the employer to make those arrangements (which will be determined in accordance with the new statutory Code), the employer will be treated as complying with its obligations of fair distribution under the Act. This will give both employers and employees reassurance that tipping practices are fair and help prevent complaints being raised.

We suggest that employers take this opportunity to review their current arrangements to ensure that they comply with these new obligations before the Act comes into force next year and look at introducing a policy where necessary in good time before then. Employers should also consider the costs which will need to be absorbed by them rather than deducted before tips are distributed.

If you have questions about the upcoming changes, please do get in touch with a member of the Employment Team.

Or for more information about tipping, you can read our previous update on this topic from 2022: Are your Tipping Policies in Tip-Top Shape? – Wedlake Bell