Business
what do they mean for employers?
![The main provisions of the Employment (Allocation of Tips) Act 2023 and the Code of Practice on Fair and Transparent Distribution of Tips come into force on 1 October 2024.](https://blogaid.org/wp-content/uploads/2024/08/what-do-they-mean-for-employers.jpg)
Key provisions of the Employment (Allocation of Tips) Act 2023 and the Code of Practice on Fair and Transparent Distribution of Tips come into force on 1 October 2024.
There are concerns that some employers are making deductions from tips, for example for ‘administrative costs’, or withholding a portion of tips. By law, employers must ensure that employees receive full “gratuities, gratuities and service charges” (“gratuities”) and that tips are allocated fairly and transparently.
According to Unite, the trade union for catering workers, the law will affect more than four million tipped workers. Short:
- All tips paid on or after October 1, 2024 and over which the employer exercises significant control or influence must be distributed fairly among employees, including eligible temporary workers
- Full payment (less statutory deductions such as tax and NIC) must be made no later than the end of the month following the month in which the gratuity was paid
- Employers must have a written tipping policy and keep records
- An independent tronc operator can award tips. A tronc scheme is a special remuneration scheme that allows companies, for example, to engage an external accounting or payroll administration company to fairly distribute employee tips, gratuities and service costs.
- Employees cannot terminate their rights and can file claims with the labor court for violation of the law
- The law applies in England, Wales and Scotland
The law only applies to “qualifying tips” that:
- All tips and information received by the employer
- Certain tips received by employees
Tips received by the employer are paid by the customer, either by the employer or by a related person. This includes tips paid by credit or debit card and deposited into the employer’s bank account before being distributed to employees or where the tip is received via a mobile app.
Tips received by employees, such as cash tips, are paid by the customer but are subsequently not received by the employer or any affiliated person. The law only covers such tips if they are subject to employer control or if the employer has significant influence over the distribution of tips, such as where the employer stipulates that all tips are shared among employees or at the end of the shift are shared.
The law applies to employees and eligible temporary workers. Therefore, tips must also be distributed fairly among eligible agency workers, although this can be done by their agent (where the agent has received the tips from the employer).
How can employers ensure that tips are allocated fairly and transparently?
The Code of Practice provides “overarching principles” regarding fairness. Employers should take this into account when designing and implementing their tipping policies.
Interestingly, the Code states that fair allocation and distribution of tips does not necessarily mean that all employees are paid equally. However, employers must use fair and reasonable factors to determine their tipping practices, and the Code provides examples:
- Type of role/work, for example division between front of house and backroom workers
- Basic pay (and how employees are involved)
- Hours worked when tips are received
- Individual and/or team performance
- Seniority/level of responsibility
- Service duration
- Customer intention
Employers must avoid unlawful discrimination when selecting and applying the factors.
Independent tron arrangements, in which an outside accounting firm or payroll department handles the distribution of tips, are common in the hospitality industry. The principles of honesty and transparency still apply. If the independent body acts unfairly or inappropriately, the employer must take action, such as instructing the independent body to change its practices, replacing the independent body or terminating the agreement.
In terms of transparency, employers must provide written policies to all employees and eligible temporary workers on how they handle tips. It may be provided in electronic form or as a physical copy. They don’t need a written policy stating that tips received by employees are not qualifying tips. However, certain information must still be provided, including that the employer is not required to have a written policy and the reasons for it. Records must be kept for three years of all tips received and the amount allocated to each employee.
Employees may file a complaint with the Labor Tribunal if the written policy and record-keeping obligations have not been followed and/or the employer has not allocated and paid tips fairly. The terms for filing the claim are three months and twelve months respectively. In either case, the Employment Tribunal may uphold the complaint, order the employer to comply and impose damages of up to £5,000. Please note: an eligible temporary worker can bring the claim against the agent in addition to or instead of the employer.
Advice for employers
By October 1, 2024, employers should review their tipping systems, record keeping and written policies, especially those factors relevant to “fairness” in the Code. I recommend discussing the policy with the staff. Although there is no obligation to do so, it will assist the employer in establishing fairness if staff agree with the policy.
The Code is not legally binding, but employment tribunals will consider it in disputes over tipping practices. Therefore, employers should familiarize themselves with the Code.
Finally, Unite recently launched the Fair Pay and Fair Tips campaign. This will aim to ensure that hospitality workers understand their rights. Unite will “name and shame rogue employers who try to ignore or distort the new legislation”.