The Employment (Allocation of Tips) Act 2023

As part of the significant employment law changes for 2024, it will become a legal requirement for tips, gratuities and service charges paid by customers to be distributed fairly to workers, without deductions, no later than the end of the following month after receipt from the customer. The main obligation of this legislation is to ensure that 100% of tips are passed to workers (less tax and NI). 

Most of the substantive provisions of the Tips Act are not yet in force. They are expected to come into force on 1^st October 2024 but the outcome of the general election may alter this.

The Government believes tips, gratuities and service charges should go to workers, rather than employers as tips are intended to reward staff for hard work and good service, and they should be distributed fairly and transparently. The Employment (Allocation of Tips) Act 2023 introduces legal obligations to regulate how employers allocate tips among workers.

The Tipping Act will apply to pubs, restaurants, cafes, bars, clubs and other leisure businesses where tips are non-incidental (i.e. once or twice a year). Tips paid by cash or card, and which are controlled by the employer must be managed under the Act. Tips given direct to an employee where the company do not have any control will not be subject to the legislation. 

Under the Act, tips must be distributed fairy to all workers, including zero hours and agency staff with regard to the place of work and where the tip was received. This means that if workers are placed at different sites, they will be entitled to a proportion of tips from each site.

It is expected that from 1^st October 2024, businesses will have the following legal obligations:

• To allocate qualifying tips etc to workers in a fair and transparent manner.

• To pay qualifying tips etc to workers within one month of the end of the month in which they were received, subject only to authorised deductions (e.g. PAYE where applicable).

• To have a written policy on the allocation of qualifying tips that is available to workers; and

• To Maintain records of all qualifying tips etc. distributed and make this available to workers on request. Employers will be required to keep records for 3 years for each worker – bear in mind, workers will be entitled to view a tipping record.

Whilst Stallard Kane can support with the preparation of a suitable policy that meets the legal requirements, employers will first need to consider the below so this can be drafted;  

• You should identify all workers entitled to a proportion of tips and service charge payments received.
• Create an appropriate system to ensure all payments received are captured in the ‘pot’ for distribution.

• Set up appropriate systems or documentation for maintaining a complete record of payments received.

• Decide at what intervals payments will be made, bearing in mind the timescales discussed above.

• Consider factors for determining the fair and transparent allocation of payments, in line with the Code. Fairness does not mean that employers must allocate the same proportion of tips to all workers. The employee’s role, length of service seniority, hours worked can all be factors when distributing payment, if distribution is fair and transparent and clearly set out in the Company’s policy. 

• Ensure appropriate personnel are trained to understand how tips are handled.

The Company’s policy must also include how a worker can raise a compliant and how this will be dealt with by the Company. 

Ultimately an employee can refer a claim to ACAS and can make a claim to an employment tribunal. 

Your dedicated HR Advisor at Stallard Kane can support in ensuring you meet your legal requirements from 1^st October 2024.