The Employment (Allocation of Tips) Act

The Employment (Allocation of Tips) Act

The Employment (Allocation of Tips) Act received Royal Assent on 2 May 2023 and its main provisions are expected to come into effect on 1 July 2024. The Act will overhaul tipping practices so that all tips, gratuities and service charges are distributed fairly amongst staff and paid without deductions.

Cash tips paid directly to a worker generally become the legal property of that individual, although it still remains possible for employers to exercise influence over cash tips under their terms of employment. Payments made by card, however, are paid directly to the employer and become the legal property of the employer.

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

As around 80 percent of tips are now paid by card, it makes it easier for businesses to retain a proportion before passing the rest to staff.

Since 2009, it has been unlawful for employers to use tips to count towards minimum wage pay. A Code of Practice  was published at the same time aimed at improving transparency around tipping practices for both customers and staff. However, the Code of Practice was voluntary, and some unions have since lobbied the Government for stronger protection.

The Act includes:

  • A requirement for employers to pass on 100 percent of tips to staff with no deductions, other than those required by tax law.
  • A statutory Code of Practice on Tipping setting out the principles of fairness and transparency that employers must have regard to. Where a tronc system is in place, this will be viewed as compliant with the Bill provided it is being run as the Bill intends.
  • A statutory Code of Practice on Tipping which outlines principles of fairness and transparency that employers must follow when distributing tips to employees. If a business uses a tronc system to manage tips, it will be considered compliant with the law as long as the system operates as intended by the legislation.
  • Requirements for employers to create a written tipping policy. This policy should outline a fair, transparent, and consistent system for distributing tips to employees. Additionally, employers must keep detailed records of how tips have been allocated for a period of three years from the date the tip was received. These records will be crucial for ensuring compliance with the legislation.
  • A right for workers to request information relating to their employer’s tipping record over a specified period during which they had worked for the employer, within the last three years. Employers will have flexibility on how to design and communicate a tipping record but will need to respond to a request for information within four weeks.
  • A requirement for tips that are distributed via a tronc to be paid no later than the end of the month, following the month in which they were paid by the customer.
  • A right for agency workers to benefit from the Act in the same way as workers.

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 allocation to the worker and/or pay compensation.

Significantly, the obligations apply to the “total amount” of tips paid by customers, therefore including any amount subsequently deducted by way of bank, payroll or administrative charges such as credit card processing fees.

The associated Code of Practice will also be drawn up this year, following a formal consultation.

Feel free to call our solicitors if you need legal advice regarding compliance with the requirements of the Employment (Allocation of Tips) Act in your workplace.

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