There has always been much debate on how to deal with the issue of tips in the workplace. Should tips go straight into the pocket of the employee with whom the customer directly interacted? Should the tip be split evenly among all employees? Is the tip the rightful property of the business and should it contribute directly to their profits?
New legislation, the Employment (Allocation of Tips) Act 2023 (the Act), is set to come into force to provide guidance on this divisive topic.
The Act aims to target businesses who retain tips paid by customers via credit card, rather than passing them on to workers. It requires employers to distribute equally those tips over which they exert “control or significant influence” (referred to as “qualifying tips”). These include tips that are automatically added directly on to a customer’s bill – for example, a service charge and tips over which the employer controls the distribution to workers. The Act stipulates that businesses must pay the tips to workers in full within a month of receiving payment of a qualifying tip from a customer. This should help ease the mind of customers, who can sometimes feel obligated to add a service charge but are unsure where or to whom it will go.
In industries and businesses where tips are provided on a more routine basis, such as in restaurants, employers will be required to establish a written policy, accessible to all staff, outlining their procedures for handling qualifying tips.
The Act received Royal Assent on 2 May 2023 and regulations implementing some of its provisions came into effect on 31 July 2023. These include:
- amendments to the Employment Rights Act 1996 (ERA 1996) to enable the Secretary of State to issue a code of practice for the purpose of promoting fairness and transparency in the distribution of qualifying tips, gratuities and service charges; and
- the main operative provisions of the Act but only for the purpose of enabling the Secretary of State to issue such a code of practice.
The rest of the Act is expected to come into force in May 2024, though there is no specific date set yet. This will allow businesses time to reassess their current procedures and ensure they will be compliant. Employees and workers will be able to rely on non-compliance with the code of practice as evidence in claims brought before employment tribunals.
