The Government has now regulated the way in which tips are dealt with to make it fairer for employees. As of 1st October 2024, the Employment (Allocation of Tips) Act 2023 has amended the Employment Rights Act 1996 so that all employers are required to pass on all tips, gratuities and service charges to workers without deduction. This ensures that workers are rewarded for the service they have provided, which is usually the intention of those giving the tips in the first place.
This amendment aims to provide a fair framework so that all employers distribute tips in a fair manner in accordance with the same rules.
Under the current law, employers are required to:
It does not matter whether the tips are paid via card, cash or through an app. Additionally, non-monetary tips can qualify (such as vouchers) provided that they can be exchanged for money, goods or services.
In order to fall under the Act, the employer is likely to receive the tip first and have significant control over the distribution of the tip.
If a worker receives a tip directly with no employer involvement, then this would not fall under the Act. Employer involvement is essential for the tip to qualify. A common instance where employers are likely to be involved is where payments are received via card or through an electronic method. With regard to tips received in this manner, employers must distribute them fairly.
This Act applies to all workers, including agency workers, but does not apply to self-employed workers.
The code of practice on fair and transparent distribution of tips sets out principles of fairness that employers should consider when allocating and distributing tips. It may not necessarily be fair to allocate tips proportionally between workers.
Instead, employers are expected to use a clear and objective criteria to determine how to allocate and distribute tips. The code of practice provides the below list as possible factors which employers may consider in allocating tips.
The list is not exhaustive and employers may include alternative criteria appropriate to their particular sector.
Employers can opt to pay workers their respective share of the tips as part of each payroll cycle.
Alternatively, employers can choose to distribute tips using a tronc. Employers could either appoint a specific member of staff or a third-party firm to function as a ‘troncmaster’. Irrespective of who is acting as troncmaster, it is imperative that the method of allocation is in line with the principles of fairness set out in the Code of practice.
Employers must ensure workers are aware of the tipping policy in place so that workers are able to effectively challenge distribution of the tips.
Employers have discretion on how to make the policy available for their staff whether this is through providing written documents or electronic copies of the policy. All members of staff should have access to the same policy, again including any agency workers.
Employers can decide to make the tipping policy available to members of the public however if they so wish. However, this is not mandatory.
When implementing any changes to policies, employers must have regard to the principles of fairness. Considering staff views on the changes is an effective method of assisting in providing fairness.
A tipping record must contain details of all qualifying tips received by the employer and must be kept for a period of 3 years from the date of the tip.
A worker has the right to make a written request to view the tipping record for their employer from the last 3 years. To request, the worker must have worked for the employer for the total duration of the period requested, i.e. they can only make requests for details which may be directly relevant to them.
What are the consequences?
Employers should ensure fair processes are in place to deal with any issues regarding tips which are raised by workers.
Both employers and workers should consider the relevant Acas code of practice on disciplinary and grievance procedures where there are any issues regarding tip allocation.
If these processes are not effective, workers can potentially bring a case before the employment tribunal. A worker’s case could be based on an employer’s failure to allocate tips fairly or in connection with an employer’s failure to comply with rules relating to tipping policies and records. In the event an employer has failed to comply with the new Act, the tribunal can order:
Even if the powers before the tribunal may appear limited, employers should bear in mind that in addition they may face significant legal costs in defending such a claim and their reputation may also be tarnished in the process.
Questions, Queries and Concerns
If you have any Employment Law concerns or wish to discuss issues either raised in here or otherwise that you might have or which may be on the horizon, our Employment Law team are on hand to discuss matters.
Please contact either our head of department Jason Alcock or trainee Kalvin Suddhi in our Employment and Dispute Resolution Team by email to jalcock@ansons.law or ksuddhi@ansons.law.
Kalvin Suddhi is a trainee solicitor who has recently joined the Employment Law and Dispute Resolution Team and assists the team in dealing with a range of employment issues.