How is the law on employee tips changing?

  • Employment Law
cup of coffee sat on top of ten pound note and pound coins
Kate Palmer FCIPD - Director of HR Advice and Consultancy at global employment law consultancy, Peninsula.

Kate Palmer, HR Advice and Consultancy Director

(Last updated )

In 2024, there will be new rules for managing staff tips. Which means the way you currently handle tips in your business could soon be unlawful.

You may already be aware that in 2023, the government announced that they would be changing the rules on tipping.

And it’s now expected that as of 1st July 2024, the Employment (Allocation of Tips) Act will require all employers to manage their staff tips in line with fair and consistent criteria.

Because this update is fast-approaching, we’ve covered everything you need to know about the new law below. So, you can take steps to make sure your business stays legally safe.

Firstly, here’s what the new law means

Currently, when staff receive tips from customers, some business owners take it upon themselves to keep these tips and invest them back into their business.

And while this practice has never been unlawful before, it does mean that employees lose out on hard-earned money.

Well, under this new law, businesses will no longer be able to keep tips from their staff. Instead, they will have to make sure that all their staff (including agency workers) receive their tips in full. And there will be very few exceptions where this does not apply.

Under the new law, it will be illegal to withhold tips from staff.

When the new law comes in, you’ll have to make sure that you distribute any tips your business receives fairly amongst your workers. This doesn’t necessarily mean you have to give everyone an equal share of every tip. But you will need to make sure you have a fair and transparent process in place (see government guidance section below).

Your employees will also have a right to request more information about your tipping records. Every worker will be able to request this of you once every three months. And in some cases, they could use this evidence against you to bring forward a credible tribunal claim.

Here’s who the new law affects

This new law will affect any business that accepts and manages tips – so primarily the hospitality sector.

The government has released a draft code of practice to help all affected businesses allocate tips fairly. This code will apply to all tipping sectors, including:

  • Hotels and restaurants.
  • Gambling and betting outlets.
  • Hairdressing and other beauty therapy businesses.
  • Taxi operations.

Here’s the government guidance

The government’s code of practice offers guidance on what counts as a tip and how you can fairly share tips with your staff. Plus, the important factors to consider when you are divvying up tips and details around keeping a written tipping policy.

You can find the full document on the official government website. Just be aware, they are still having consultations around this code, so we may not be seeing the finished article just yet.

But at present, the government’s code of practice says that you should follow these four principles in your tipping practices:

  1. You should have a written tips policy. It should be easy for anyone to access your policy and it should also be on public display in your work premises.
  2. You should have a process for dealing with customer requests about how you manage tips and service charges.
  3. You should make sure your staff understand and can explain your business’ policy on tipping and where to direct customers for more information.
  4. Your workers should receive a full breakdown of how you distribute service charges, tips, gratuities, and cover charges. Plus, any deductions you make and why.

Here’s why the law is being introduced

The main reason why the government is introducing this tipping act is to help prevent businesses from pocketing the earnings of their staff.

Because while the majority of employers do pass along tips to their staff in full, others might not. And in the government’s consultation document, they mention how this creates a number of issues, like:

1. Deserving employees losing out on money.

As mentioned earlier, hard working employees don’t reap the well-deserved financial rewards of providing good service.

2. Customer tips not reaching the intended party.

If a customer provides a tip directly to a member of staff for their service and the business withholds this tip, the customer’s money doesn’t land with the employee as originally intended. And this may create grievances if the customer doesn’t know this is the case upfront.

3. Businesses having an unfair competitive advantage

If a business keeps hold of all its tips, this might create an unfair advantage in the competitive market.

And here’s what you’ll need to do

To stay in line with the law, make sure to have a read of the government’s code of practice and keep an eye out for any further updates.

Once this law comes into effect, you will need to make sure you:

  • Have a written tipping policy setting out how you allocate staff tips fairly.
  • Keep records of any tips given to staff i.e. the name of the worker who received the tip and how much money they received.
  • Have a fair process for resolving issues and concerns from staff who feel they haven’t received the right share of their tip.
  • Have a process for managing customer queries around your tipping records.

Alongside the new tipping act, an abundance of other legal updates are making their mark in 2024. So, to make sure you’re ready for the changes ahead, check out our blog: The new HR laws expected in 2024 (and how to prepare) If you haven’t already.

In the meantime, for questions about your paperwork and processes, don’t hesitate to get in touch for a free advice call with an HR expert. Just tap below to book a consultation today.

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