Legislation is being introduced to regulate how employers allocate tips amongst workers.
The Employment (Allocation of Tips) Act 2023 (Commencement No. 2) Regulations 2024 SI 2024/829 (Tips Act) and the Code of Practice on Fair and Transparent Distribution of Tips introduce obligations on employers to ensure that workers receive tips, gratuities and service charges in full, and that they are allocated in a fair and transparent way.
The legislation comes into force on 1 October 2024 and applies in England, Scotland and Wales. It applies to workers and some agency workers. Employers will have a duty to ensure that all payments are allocated fairly to workers, and to make payment in full no later than the end of the month following the month in which the customer paid the tip.
It does not make a difference whether a service charge is mandatory or discretionary for the customer to pay. Any charges or fees for using a credit card will not reduce the amount of the qualifying tip that must be allocated to workers.
Employers must have a written policy on how it deals with payments, and this must be shared with workers. They must also keep a record of how every tip has been dealt with.
Subject to certain exemptions, it is unlawful for an employer to make a deduction from a worker’s wages. Section 11 amends to the statutory provisions on unlawful deduction from wages. The definition of wages will now include “qualifying tips, gratuities and services charges allocated to the worker”.
Employers are not able to take account of tips, gratuities and service charges when deciding if a worker has received the National Minimum Wage. They will also not form part of the employee’s remuneration of a week’s pay.
If an employer has failed to fairly allocate and pay tips, a worker will be able to present a complaint to the Employment Tribunal under section 27D and 27G of the Employment Rights Act 1996. Complaints must be presented up to 12 months from the date of the failure to comply.
Not all payments fall within the scope of the Act and are covered by the Code. If you would like further information about whether they amount to qualifying tips, policies to deal with them and to enquire about a potential unlawful deduction from wages claim, please get in touch so we can advise you further.
Harriette Loveluck-Edwards 14th August 2024