Tips overhaul becomes law

  • Employment Law
Tips left next to a bill in a cafe
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Peninsula Group, HR and Health & Safety Experts

(Last updated )

The Employment (Allocation of Tips) Act 2023 recently gained Royal Assent meaning it has successfully passed all stages of the parliamentary process and is now officially a law.

Implementation of the Act’s provisions is likely to take place in early 2024. So, while hospitality employers are not yet subject to the new requirements, it will be advisable for them to use the remaining time to take stock of current practices and prepare for the changes.

Purpose of the law

The main aim of this law is to ban employers keeping “qualifying tips, gratuities and service charges” passed over from customers. The money will need to be allocated fairly to staff, including agency workers.

A “qualifying tip, gratuity and service charge” means “employer-received” tips, and “worker-received” tips which are subject to employer control or are connected with any other worker-received tips which are subject to employer control.

An “employer-received tip” is an amount paid by a customer by way of a tip, gratuity or service charge (however described) which is received upon its payment or subsequently by the employer or an associated person, or is received upon its payment by a person under a payment arrangement made between the employer and that person.

A “worker-received tip” is an amount paid by a customer of an employer by way of a tip, gratuity or service charge (however described) which is received upon its payment by a worker of the employer and is not subsequently received by the employer or an associated person.

When passing on tips, gratuities and service charges, employers will not be permitted to make any deductions, and the payment must be made by the end of the month following the month in which the money was paid by the customer.

Statutory Code of Practice

Once the law comes into place, employers must ensure the fairness of arrangements to distribute tips among workers, whether when distributed by the employer or via an independent tronc. This includes not sharing payments with a different restaurant under the same employer.

A statutory Code of Practice will be created to guide employers on being fair and transparent when distributing qualifying tips. The Code has not yet been drafted so it remains to be seen how the Government will shape “fair allocation”.

The Code will have the same status as other statutory Codes, including that on disciplinary and grievance procedures. This means that, when an employment tribunal is dealing with a case regarding the fair payment of tips, it must refer to the Code to see whether the employer followed its contents and this will help determine whether the law has been breached.

Failure to follow the Code will risk an uplift, of maximum 25%, to any award given as a result of a breach of the law.

Policy requirement

Employers will be required to have a written tips policy which is available to workers. It must include the following information:

  • whether the employer requires or encourages customers to pay tips, gratuities and service charges at the place of business and
  • how the employer ensures that all qualifying tips, gratuities and service charges paid at, or otherwise attributable to, the place of business are dealt with, including how the employer allocates qualifying tips, gratuities and service charges between workers at the place of business.

Records

Employers will need to create a record of how every qualifying tip, gratuity and service charge paid at, or otherwise attributable to, the place of business has been dealt with and keep the record for three years.

Workers will be able to make a request to see these records and the request should be complied with within 4 weeks.

Employment tribunal claims

Workers will be able to make a claim to tribunal that:

  • tips have not been allocated fairly
  • tips have not been allocated within the timescale required
  • the employer does not have a written tips policy
  • the employer has not kept records on tips or allowed access to them upon request.

Maximum compensation for these claims will be £5000.

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