On 2 May 2023, the very-to-the-point entitled Employment (Allocation of Tips) Act 2023 received royal assent.

The topic of “tips” has sparked lots of discussions in recent years, focusing on how they should be handled, who they belong to, and how they should be divided among staff members. The Act aims to prohibit businesses from retaining tips paid via credit card and instead requires that they be distributed to the staff. Many businesses in the hospitality industry have already implemented the practice of sharing all tips and service charges with their employees. This legislation primarily targets those businesses that still withhold a portion of the service charges.

Customers often feel obligated to pay the service charges included in their bills, and it is reassuring for them to know that these payments will benefit the entire staff. However, implementing this payment system may pose challenges for certain businesses. The new Act aims to ensure fairness in distributing service charges and electronic tips while also ensuring the proper collection of income tax and National Insurance at the same time.

In summary, the main provisions of the act are:

  • employers to pass on 100% of all tips, gratuities and service changes received;
  • employers to have a written policy on tips, gratuities and service changes to ensure they are distributed in a fair and transparent way;
  • a requirement that employers must keep a record how tips were dealt with for three years from the date they were received;
  • A statutory Code of Practice on Tipping setting out the principles of fairness and transparency that employers must have regard to; and
  • a right for staff to request information on the employer’s tipping records for any period in which they worked within the last three years

Which “tips” are covered?

Tips which are added to a customer’s bill are now covered, essentially money which the business controls.  Cash tips paid directly to workers generally become the legal property of that worker.

Who does the Act apply to?

Employees, workers and agency staff.

Penalties

Claims can be brought up to 12 months, presumably from the date when the employer failed to pay the tip.  Tribunals will be able to compel employers to revise their tip allocation policies, order the employer to pay tips and services charges not just to the Claimant but to any workers employed by the employer and award up to £5,000 per Claimant to reflect additional financial losses caused by non-payment.

It should also be noted that since 2009, employers cannot use tips as part of calculating minimum wage entitlements.

However,  the Act is not yet in force and we await a commencement date for implementation.

Employers would be wise to start to consider how they will manage the new requirements in their business.

1st June 2023

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