If you have a business where your staff receive tips, gratuities and service charges (“tips”) there are important changes in force from 1 October 2024.
The Employment (Allocation of Tips) Act 2023, effective from October 2024, ensures that tips, gratuities, and service charges are distributed fairly and transparently among workers, including eligible agency staff. This law responds to the rise in tipping via card payments, which often become the legal property of employers. The new legislation aims to ensure that workers, especially in the hospitality sector, receive 100% of tips paid by card. Additionally, tips cannot count towards the National Minimum Wage, and a statutory Code of Practice guides employers in fair distribution.
What is covered by the Tips Act?
It applies to all “qualifying tips, gratuities and service charges”, and applies to the full amount paid by the customer.
- Tips / Gratuities: spontaneous payments offered by the customer, either by cash or card payment.
- Service Charges: amounts added to a customer’s bill before it is presented to them, often a percentage.
It is important to note that tips paid directly to workers are only ‘qualifying’ tips if they are subject to the employer’s control, such as where the policy is for all tips to be shared amongst all workers.
The Tips Act applies to all employer-received tips and certain worker-received tips. Not all tips fall within the scope of the Tips Act and are covered by the Code. For example, if a worker receives and keeps a cash tip, with no employer control or involvement, the tip is out of scope for the Tips Act and the Code.
Tipping apps are a grey area, but where this involves operating according to an employer’s instructions (as is often the case) then this will fall within the scope of the Tips Act. Employers will also not be off the hook if an independent tronc operator is used. To maintain a fair allocation of tips, an employer must act to rectify a situation if it becomes aware of an independent tronc operator acting in an unfair or improper manner, otherwise an employer may be liable for claims against it.
Fair allocation and payment
Employers must ensure that the total amount of the qualifying tips, gratuities and service charges is allocated fairly between the workers. This means 100% must be paid less deductions that are required under tax law.
In the majority of cases, the fair allocation must then be paid to the workers no later than the end of the month following the month in which the tip/gratuity/service charge was paid by the customer. For example a tip left on 15 July must be paid by 31 August at the latest. There are some variations to this for where an independent tronc operator manages the tips, tips are paid to eligible agency workers, and non-public places of business.
What is a fair allocation?
Along with the Tips Act, a statutory Code of Practice on Tipping has been introduced setting out the principles of fairness and transparency to which employers must have regard. Failure to comply with the Code will be admissible in evidence at an employment tribunal and the tribunal will have to take it into account.
The Code sets out some key principles and suggestions:
- There may be reasons to have different proportions for different workers.
- All workers involved in the service should be considered, including agency workers.
- There should be a clear and objective set of factors set by the employer, such as the role, payment, hours worked, performance, seniority, length of service or customer intentions.
- Employers should avoid indirect or unintentional discrimination.
- It may be helpful to consult the workers and review the approach regularly.
What else does the Tips Act require?
Written Policy
Employers are required to have a written policy on tipping where tips/gratuities/service charges are paid on more than an occasional and exceptional basis. The policy should set out written guidelines and the factors for determining the fair allocation and made available to all workers.
Record keeping
Where tipping is on more than an occasional and exceptional basis, employers must keep records of how every tip has been dealt with and must keep this information for three years. Note that workers have a right to request this information over the period during which they worked for the employer during that timeframe.
Non-statutory Guidance
A guidance note has also been published on 27 September, which gives helpful guidance to support the new Tips Act. This includes:
- Agency workers: Employers must take agency workers into account when considering the distribution of tips. Agency workers may not always receive an equal share of tips in comparison to an organisation’s own employees depending on the particular circumstances, however they should not be unduly disadvantaged as a result of their employment status.
- Multiple sites of operation: Employers should not pool tips received across multiple sites or branches.
- Scope of workers: All workers directly involved in providing a service to customers should be considered.
Please do contact us if you require more information.
