Moving forward with the new Employment (Allocation of Tips) Act 2023 – What will change?

The employment allocation of tips act 2023 for employers

From 1st July 2024, the way that employers manage and allocate tips (including service charge payments) will change.

Under the draft code (which may be subject to amendments as the code is currently out for consultation), the fundamental rules that employers will need to comply with are set out below:

• 100% of tips and service charges must be distributed to staff (subject to usual tax deductions only). For the avoidance of doubt, employers will no longer be able to use tips or service charge money to cover the administrative costs associated with the allocation of tips, such as administrative costs for tronc systems or costs incurred when a tip is paid by credit card.
• Payments of tips and service charges must be paid by the end of the following month that they are paid by the consumer. By way of example, a tip payment made by a consumer in January must be paid by the end of February. Employers will no longer be able to store tips and pay them throughout the year, perhaps to cover shortfalls that occur in quieter seasons, nor will they be able to allocate tips on a quarterly basis (or by similar arrangement).
• Tips and service charge payments must be paid to workers at the venue in which they were paid. It will not be possible to allocate tips between different sites. Tips must be allocated exclusively to the venue in which they were paid by the consumer. There is an exception however for central services and/or staff who work remotely (i.e. head office staff/remote kitchen staff) whose contribution to the business leads to tips being paid to a particular venue. In this situation, the legislation allows for tips to be distributed to them.
• Agency workers are eligible for tips. The way in which agency workers are paid their tips, either by payroll or through the agency as a middle-man will likely be determined through time. The key point is that agency workers are eligible to receive tips.
• The distribution of tips and service charge payments must be fair. What makes the distribution of tips fair is discussed below.

 

The allocation of tips and service charge - what is fair?

The draft Code of Practice makes clear that the distribution of tips must be fair by ensuring that the tips that consumers leave in recognition of good service and hard work are going to workers as intended.

 

How should tips be distributed to employees?

The draft Code of Practice recognises that distributing tips fairly does not necessarily require employers to allocate the same proportion of tips to all workers. Where employers decide to allocate tips in different proportions, they should use a clear and objective set of factors to justify the allocation that is fair and reasonable given the circumstances and nature of the business.

The draft code suggests the below factors which employers may take into consideration if the proportion of tips paid will vary between workers:

• Type of role/work (i.e. distribution between front of house and back room workers);
• Basic pay and how workers are engaged;
• Individual and/ or team performance;
• Seniority/level of responsibility;
• Length of time served with the employer; and
• Customer intention.

Employers should be cautious if they are going to be paying their staff different proportions of tips. Care must be taken to avoid indirect or unintentional discrimination. For example, discrimination may occur if an employer decides to pay the front of house staff a greater proportion of tips, but the back of house staff, who invariably get paid less tips, have a different protected characteristic. Our employment law experts can assist with providing legal advice for businesses to support your team and correctly follow the employment allocation of tips act 2023.

 

What methods can employers use to allocate tips?

Employers may receive tips directly and pay their staff as part of the next payroll, or they may decide to allocate and distribute tips fairly and transparently by using a tronc system. If using an independent tronc operator, the employer must ensure that the draft Code of Practice is followed.

 

Transparency in the workplace

With the aim of promoting fairness, the new legislation places great weight on an employer’s duty to be transparent when it comes to tips and how they are allocated and distributed. To ensure transparency, the Code of Practice states that employers will be required to:

• Have a written policy in place for how tips are dealt with at their place of work: This policy must be made available to all employees and agency workers.
• Consult with workers to seek a broad agreement that the allocation of tips is fair, reasonable and clear. As above, factors determining the allocation of tips must be included in the written policy.​​​​
• Keep a record of tips received and distributed to each employee for three years from the date of the tip: All records need to be kept for three years from the date that the tip or service charge is made by a consumer.

A worker has the right to make a written request (limited to one request per worker in one three-month period) to view the tipping record for a period dating back three years. If a request is made, the employer must provide:

1. The individual’s tipping record;
2. The total amount of qualifying tips received by the employer (i.e. Employer-received tips);
3. The amount of tips paid to that specific individual (tipping records of other individuals must not be disclosed as part of this process).

 

Grievances, disputes and tribunal awards

Where an employee raises an issue about how tips are being allocated and distributed, employers should follow their usual grievance and or disciplinary procedures. If fair procedures are not followed, employees can pursue a claim in the Employment Tribunal.

If an employer fails to comply with the principles of fairness or transparency in tipping and a claim is successfully pursued against them, the Tribunal is empowered to do the following:

• Make a public declaration to that effect;
• Make an order for the employer to revise previous allocation of tips;
• Make a non-binding recommendation on a previous allocation of tips;
• Order the employer to pay compensation.

Where an adverse finding is made, the Tribunal can make awards to other workers at the relevant place of business who have not made a complaint to the tribunal.

 

The next steps

If you have any questions relating to this article or specifically how the changes to tipping legislation may impact your business, please contact our employment team on [email protected]. Alternatively, learn how our employment law team can work with you to provide a bespoke solution or package to help your business excel.