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What employers need to know about The Employment (Allocation of Tips) Act

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What’s the difference between a mean customer and a canoe? A canoe tips. Not the best joke, but its relevant to new hospitality related workplaces because of the pending introduction of The Employment (Allocation of Tips) Act 2023, due to be of effect on 1 October 2024. David Carmichael, partner in our employment law team, looks at the key points employers need to know.

What is The Act?

The Act’s aim is to ensure fairness and transparency in the distribution of tips among workers.

Employers are to pass on all tips and service charges to workers without deductions.

Tips are to be distributed in a fair and transparent manner where the employer has control over the tips.

Employer policy

An employer must have a written policy on how tips are distributed, ideally with input into that policy from workers.

An employer must maintain a record of all tips paid at their place of business.

An employer has a discretion how tips are to be divided up between workers but the basis on which tips are shared out must be fair, a principle that is the subject of statutory guidance in the form of the snappily titled “Code of Practice on fair and transparent distribution of tips” (Code), a copy of which can be found here (see paragraphs 19-26 in particular).

In deciding on the way tips are to be allocated, employers need to be aware of the risks of inadvertent, or indirect discrimination (say against part time workers). Also note that tips are to be distributed within a month of the month in which the employer receives them from the customer.

Disputes about these new worker rights must be taken to ACAS in the first instance and if not resolved can be referred to an Employment Tribunal.

Penalties for non-compliance by an employer include an ET declaration (obviously not good in a tight labour market and a potential recruiting sergeant for a trade union), and the award of compensation of up to £5,000 per employee.

Consequences of these new obligations are that employers will be required to deduct tax and NICs (and remit employer’s NICs) which may not have been the case with a more informal system of tipping.

Further considerations

Other questions to consider apart from the adoption of a tipping policy, and establishing a record of tips received, include whether tips should be included for the purpose of calculating the National Living Wage and holiday pay.

A summary of actions: Agree a tips policy in line with the Code; establish accounting records to capture information on tips received; consider if tips count towards the National Minimum and Living Wages, plus holiday pay.

Our previous post on the allocation of tips legislation, goes into more detail about the key changes and the implications for employers.

If you need any advice in relation to this evolving area or would like support in devising, drafting, and implementing a tips policy, get in touch with our employment team on 01772 258 321.


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