The Employment (Allocation of Tips) Act 2023: how will this impact hospitality businesses?

The Employment (Allocation of Tips) Act  2023 amends the Employment Rights Act 1996 to insert new legal obligations on bar and restaurant employers. It is expected by Government that the Act will come into force in May 2024, about a year after Royal Assent. In the meantime, the Secretary of State for Trade and Business will be drafting a new Code of Practice upon which there will need to be consultation. The Code will set out the details of how the Government expects employers to implement the scheme.

What will this mean for employers in the hospitality industry?

This legislation requires employers to ensure that all tips, gratuities and service charges they receive or exercise control over must be paid to workers in full without deductions and by the end of the following month. It would also introduce obligations to ensure the fairness of arrangements to distribute those tips among workers, either when distributed by the employer or via an independent tronc. Under the Act, the Secretary of State is obliged to introduce a new code of practice about the fair and transparent distribution of qualifying tips, gratuities and service charges which will help to indicate what will count as a fair distribution for the purposes of the new legal obligations. It will also allow for the enforcement of the new rights through the employment tribunal system, providing increased protection for employees in the hospitality industry.

These provisions would apply both to those working directly for hospitality businesses and to agency workers supplied to work in those businesses.

Why now?

This is a long overdue measure and has been in the pipeline since 2015 following the news that Pizza Express and Wahaca were skimming tips off of their employees. Wahaca went as far as requiring staff to hand over 3.3% of card sales and 0.075% of cash sales at the end of every shift, regardless of how much money they made from tips.

A report earlier this year from Hospitality Hiring Insider found that 2.9 million people are currently thinking of moving into a career in hospitality and 2.1 million people are considering taking on a second job in hospitality, due to the cost-of-living crisis. The hospitality industry will need to ensure it has policies in place to protect the staff, especially now that over 80% of payments in bars and restaurants are made via credit or debit cards.

With the introduction of a code of practice as to how bar and restaurant owners will be required to split up and redistribute the tips between staff, employers who have a licensed premises should be getting ahead of the game and implementing measures now to ensure tips are allocated fairly.

If you have questions about how the Act will impact your business, please contact Gareth Hughes.