Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
The Employment (Allocation of Tips) Bill received Royal Assent in May, becoming the Employment (Allocation of Tips) Act 2023 (the “Act”), and is expected to come into force in May 2024. The Act has been introduced after research suggested that employers in the UK were deducting as much as 10% from tips given to their workers. The Act creates a legal obligation for employers to allocate tips, gratuities, and service charges fairly between workers.
What are the key provisions?
- The Act applies to qualifying tips, gratuities, and service charges (together “tips”). Qualifying tips include those that are received by the employer directly, or that are subject to employer control.
- Allocate the total amount: The obligation to share tips fairly will apply to the total amount of tips received. Tips must be shared between workers at that particular venue, and not distributed across the business. The payments to the worker will be subject to deductions for tax and national insurance contributions.
- Pay within one month: Tips will need to be allocated and paid to workers no later than the end of the month following the month in which the tips were paid.
- Have a written policy: Where tips are paid on more than an occasional or exceptional basis, employers will need to have a written policy detailing whether tips are encouraged in the workplace and how tips are allocated.
- Maintain records: Again, where tips are paid on more than an occasional or exceptional basis, employers will need to retain records of the tips that were paid by customers and how they were allocated. Records must be kept for three years. Workers will have the right to make written requests for records maintained by the employer.
- Right to complain to the employment tribunal: Workers will have the right to bring a claim in the employment tribunal if the employer has not complied with the Act when allocating tips or has failed to comply with its obligations to have a written policy or maintain records. Compensation payments for failure to correctly allocate tips will be capped at £5,000.
What are the next steps for employers?
The Act is not set to come into force until May 2024. In the meantime, the government is launching a consultation to develop a code of practice which will contain guidance for employers on the allocation of tips. Although there is nothing to do yet, employers should start considering their current practices relating to the allocation of tips to prepare for the more stringent regulation that is soon to come.
* Hannah Drury is a Paralegal and Trainee Solicitor in GQ|Littler’s London office.