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The Employment (Allocation of Tips) Act 2023 comes into force on 1 October 2024 and introduces significant changes to how tips, gratuities and service charges are handled. 

The statutory code of practice, which outlines the requirements for employers under the new legislation, states employers will need to distribute 100% of tips in a “fair and transparent manner” and pass on all tips and service charges to workers without deductions. 

In addition to hospitality businesses, this new legislation is likely to impact other sectors including from hair and beauty salons to taxi drivers.

What is classed as a tip?

The Act covers all tips, gratuities and service charges, collectively referred to as “tips” that the employer receives, whether paid by cash, card or non-monetary tips, and applies to all workers including agency workers and zero hour workers.   

The Act does not however include cash given directly to a worker which they are entitled to keep.

Does The Act apply to occasional and exceptional tips?

If qualifying tips are paid on an occasional or exceptional basis a written policy is not required, but an employer must explain the fact that a written policy is not required and why.  A tips policy exemption statement would be used.  There is no legal definition of what amounts to “occasional and exceptional” but the Statutory Code of Practice on Fair and Transparent Distribution of Tips gives the example of a shop which only receives tips from customers a few times a year, and therefore would not be required to have a written tipping policy. 

Timing of tip payments and regular wages

Tips must be paid in full to employees no later than the end of the next calendar month after they are received.

It will no longer be legal to alter an employee’s regular wage in return for a share of tips.  It will also be illegal for any guaranteed tips’ value to contribute to the National Minimum Wage laws.

Does fair allocation mean equal allocation? 

The Code of Practice on fair and transparent allocation states that allocation doesn’t have to be equal however, allocation must be clear, fair and objective.  Employers have some choice over their tip allocation and have the discretion to offer employees in different roles more tips than others.

Factors to consider in allocation:

• Type of role or work (i.e. front or back of house)
• Basic pay
• Seniority or level of performance
• Individual and/or team performance
• Length of time served with employer
• Customer intention

The Code also highlights that employers must avoid unlawful discrimination when selecting and applying these factors for allocating tips.  There is no “one size fits all” approach and it will be for each employer to determine which is a fair allocation in the context of their business. 

Are employers still responsible if using an independent tronc operator?

A troncmaster is typically independent from the employer and is responsible for managing and distributing tips among employees.  Businesses may choose to use an independent tronc operator to handle the allocation of tips on their behalf, but employers should be aware they will still be responsible for ensuring full compliance. 

Documenting your tipping policy and tipping records.

Transparency remains a cornerstone of the Code.  Employers (and Independent Troncmaters) will be obliged to publish and distribute a clear policy relating to tips and how they are allocated.  The policy must explain how the employer complies with the need for “fair” allocation.

Records of tips’ allocations must be retained for 3 years, and employees may request their personal tips statement as well as the tips statement as long as there is no other personal data of other employees included.  It is important for employers to action requests in compliance with GDPR.

It is really important that employers communicate the new policy effectively to all staff.

What are the Implications of getting it wrong?

A Tribunal can award workers up to £5,000 in compensation for any financial losses suffered if employers have not adhered to legislation.  It is worth noting that employees have up to 12 months to bring a claim. 

An employee could bring a claim against the employer for any of the following:

• Failure to allocate tips fairly
• Failure to pay tips by the end of the month following the month in which the tip was paid by the customer
• Failure to have a written policy
• Failure to keep records

Will the Labour Government make any further changes?

The Labour Government have said they will strengthen the new law on tips and intend to give workers the power to decide on the distribution of tips.

How can employers prepare?

1. Understand the new legislation and obligations
2. Review and update policies and procedures if necessary making it clear and transparent how tips are collected, shared and reported
3. Communicate with workers
4. Decide how to keep records ensuring the tips record keeping system is in place so that staff can access this information should they request to. 

If you have any specific questions about how this might affect you or your business, or need support developing documentation, please get in touch: Contact Us | KR HR & Training Consultancy Ltd (krhrconsultancy.co.uk)