From 1 October 2024, the Employment (Allocation of Tips Act) 2023 will come into force, requiring all tips to be fairly distributed by employers amongst their staff.
The Act, alongside a new Code of Practice, legally requires businesses to distribute all discretionary tips, in a set timeframe, implementing a fair and transparent policy for allocation.
What Tips are covered by the rules?
A tip, service charge or gratuity paid by a customer that the employer either receives or over which is has control in respect of its distribution. Non-monetary tips may also be subject to the rules where they have a fixed value and again are received or controlled by the employer (e.g. a casino chip given to a casino worker as a tip).
How should tips be allocated?
Under the new rules the employers must:
- Ensure tips are allocated in a fair and transparent way;
- Pass on 100% of the tips to workers – only deductions required by statue (e.g. income tax and national insurance) are permitted and no deduction can be made for administration of the scheme or other associated costs;
- Be paid to workers by the end of the month after the month in which the tip was received;
- Have a written policy on how the business allocates tips and ensure that this is made available to all workers; and
- Maintain records of all qualifying tips and how they have been allocated for at least tree years from the date the tip was paid.
Tips should be allocated fairly but this does not necessarily mean that they need to be allocated equally. Allocation could be determined by a number of factors including type of role (e.g. front or back of house, seniority, length of service etc). The key point is that this should be clearly documented in the written policy. Further details can be found in the government’s statutory Code of Practice here.
Who should tips be allocated to?
Workers on zero hours contracts and agency workers are all entitled to receive a fair allocation of tips, along with permanent employees. All workers should be aware of the policy on the distribution of tips and are entitled to request details of the amount of tips received and their allocation.
What happens if workers do not agree with the allocation?
A worker can raise a complaint via the employment tribunal if they believe the employer is not complying with the law in terms of fair allocation of tips and/or failing to allocate in the required timescales.
Agency staff are able to raise a complaint via tribunal against the employer directly and/or the agent.
A complaint should be made within 12 months of the failure to comply.
The tribunal can order the employer to revise the allocation of tips paid and pay compensation of up to £5,000 per individual.
What action should I take now?
With less than a month until the rules come in, now is the time to ensure that you have a policy document in place that is compliant with the Act as well as implementing an adequate system to maintain records of tips received and how they have been distributed.
Under the Code of Conduct, it also specifically states that employers should consult with workers to gain broad agreement that the proposed allocation for tips is fair, reasonable and clear, so we would recommend such discussion take place in the coming weeks prior to the introduction of the new rules.
If in doubt of your responsibilities/requirements under the new Act, we would recommend that advice is sought from an employment law specialist.
