How can hospitality businesses prepare for the Employment (Allocation of Tips) Act 2023?

The introduction of the Employment (Allocation of Tips) Act 2023 (‘Tipping Act’), due to come into force on 1 October 2024 alongside the newly published Code of Practice on Fair and Transparent Distribution of Tips dated April 2024 (‘the Code’), will have a significant impact on hospitality businesses and they should prepare ahead of time to ensure compliance from day one.

In this article, employment partner Sungjin Park explains how hospitality businesses can prepare for the changes.

The Tipping Act’s purpose

The purpose of the Tipping Act is to ensure a fair and transparent allocation of all tips, gratuities and service charges. The desired outcome of the Tipping Act is to improve fairness for workers by ensuring that tips left by customers go to the workers as intended.

Under the Tipping Act, employers will be required to:

• Pass on all tips to workers without deductions.
• Ensure that those tips are distributed in a fair and transparent manner.
• Have regard to the Code.
• Maintain a written policy on how tips are dealt with and ensure this policy is made available to all workers.
• Maintain a record of how the tips were allocated and the workers will have the right to access such records.

The Tipping Act’s scope

The Tipping Act applies to workers and eligible agency workers, and covers all tips, gratuities and service charges paid by customers on or after 1 October 2024.

What are qualifying “tips, gratuities and service charges”?

• All employer-received tips and certain worker-received tips.
• Worker received tips are those which are subject to employer control or are connected with any other worker-received tips which are subject to employer control.
• If a worker receives and keeps a cash tip, with no employer control or involvement, then this tip is out of scope.
• It does not make a difference whether a service charge is mandatory or discretionary for the customer to pay.
• VAT is not included.

What are the employer’s duties?

1. Fair allocation of tips

Employers must ensure that “the total amount of the qualifying tips, gratuities and service charges … is allocated fairly between workers of the employer at that place of business”.

This fair allocation must be made no later than the end of the month following the month in which the tips are paid by the customer. For example, if tips are paid by a customer on 23 June, this must be distributed by 31 July.

There is no statutory definition of what a “fair” allocation is, but the Code suggests the following factors to consider. The Code states that the choice of factors should be fair and reasonable given the circumstances and the nature of the business.

• Type of role/work
• Basic pay
• Hours worked during period when tips are received
• Individual and/or team performance
• Seniority/level of responsibility
• Length of service
• Customer intention

If an employer discharges its contractual duty to allocate tips under a relevant employment contract, then this will go towards discharging its duty under the Tipping Act 2023.

Employers can use an independent tronc operator (ITO) to discharge its duty under the Act.

2. Written policy

Employers must have a written policy on how they deal with tips. Such a policy must include:

• Whether the employer requires or encourages customers to pay tips.
• How the employer ensures that all qualifying tips are dealt with including how the employer allocates tips between workers at the place of business.

The Code states that all staff must have the same access to the written policy. The individual workers must be aware of this policy, otherwise the employer cannot be said to have complied with this duty.

3. Record keeping

The employer must create a record of how tips are paid and maintain that record for three years from when the tips were paid. This record must include:

• The amount of tips paid at the place of business.
• The amount of those tips that the employer allocated to their workers at the place of business and arranged to be allocated to their workers at the place of business by an ITO.

A worker has the right to make a written request for the following information from the employer which the employer must provide within four weeks of the request:

• The amount of tips paid at the place of business.
• The amount of those tips that the employer allocated to the worker and that the employer arranged to be allocated to workers at the place of business by an ITO.

Consequences for non-compliance

If the employer has failed to allocate and pay tips and/or pay tips on time, an employee can bring a claim against their employer in the Employment Tribunal up to 12 months after the employer’s failure to comply.

The Tribunal may order a compensation of up to £5,000 as well as to:

• Require the employer to revise an allocation previously made.
• Make a recommendation to the employer regarding that allocation, i.e. suggest how tips should be allocated.
• Require the employer to make a payment to the complainant and also require payment to other workers who did not bring proceedings.

An employee can also bring a claim against their employer in the Tribunal up to three months after the employer’s failure to have a written policy or to abide by its record-keeping obligation. The Tribunal can also order a compensation of up to £5,000 for the employer’s failure in relation to these duties.

How to prepare

Employers need to take urgent action and prepare by:

• Carry out a Tipping Audit and Risk Assessment (‘TARA’) to diagnose the current policy (or non-policy) on tips so that the employer is in a position to draw up a fair and transparent new Tipping Policy for its workers. Employers must ensure that the new Policy is compliant with the provisions of the Tipping Act and the Code.
• Resulting from the TARA, prepare a template record of how tips are to be distributed under the record-keeping provisions of the Tipping Act.
• Those with a sponsor licence are encouraged to pay a particular attention to the provisions of the Tipping Act and its obligations under the new law.

If you have questions or concerns about how the Act will impact your business, please contact Sungjin Park.