New Tipping Laws for Employers: What You Need to Know
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Understanding the New Tipping Act 2023
Starting from 1 October 2024, employers will be required to pass on all qualifying tips, gratuities, and service charges to their employees. In preparation for these changes, the government has published the final draft of the statutory code of practice on fair and transparent distribution of tips ("the Code"). This latest version includes only minor amendments from the earlier draft.
Key Provisions of the Tipping Act
The Employment (Allocation of Tips) Act 2023, also known as the "Tipping Act," will come into full effect on 1 October 2024. The Tipping Act mandates several critical responsibilities for employers:
- Employers must pass on all "qualifying tips, gratuities, and service charges" to workers without deductions, except in limited cases such as income tax deductions.
- Employers are required to distribute tips in a fair and transparent manner when they control or significantly influence their distribution.
- When distributing or influencing the distribution of tips, employers must consider the Code.
- Employers need to maintain a written policy on tips.
- A record of all tips and their allocation and distribution among workers must be kept, and workers have the right to request access to these records.
Why is the Code Important?
Employers are legally required to consider the Code when designing and implementing their tipping policies and practices. While a breach of the Code does not create a standalone claim, tribunal judges will take it into account when determining claims under the Tipping Act.
Scope: Qualifying Tips
The Code clarifies that "qualifying tips, gratuities, and service charges" include:
- All "employer-received tips," such as those paid by card or through a mobile app.
- Certain "worker-received tips," which are subject to the employer's control or connected to worker-received tips that are subject to employer control. For example, an employer exercises control if they tell staff how to distribute cash tips or if they collect cash tips and distribute them later.
Notably, cash tips kept by workers without any employer involvement are out of scope. However, if a digital tipping app is used and the employer provides instructions on how tips should be allocated, it likely falls under the Tipping Act.
Scope: Qualifying Workers
The Tipping Act applies to all workers, including eligible agency workers. It does not apply to self-employed individuals.
Ensuring Fairness in Tip Distribution
Employers are not required to allocate the same proportion of tips to all workers. They should establish objective, fair, and reasonable factors for allocating and distributing tips, which will depend on individual business circumstances. The Code provides a list of example factors:
- Type of role/work, such as the difference between front-of-house and backroom workers.
- Basic pay of the workers.
- Hours worked during the period when tips are received.
- Seniority and level of responsibility.
- Length of service.
- Customer intention.
These factors should be outlined in a tipping policy and reviewed regularly. Employers must ensure there is no unlawful discrimination, particularly indirect discrimination, when allocating tips. Consultation with workers is crucial to gain broad agreement on the fairness of the policy. If a tipping system affects pay terms and conditions, employers should consider any potential collective consultation obligations.
Distribution and Allocation Methods
Employers must ensure all tips are distributed to workers by the end of the month following the month in which the tips were paid by customers. For instance, if a customer leaves a tip on 23 June, it must be distributed by 31 July at the latest.
There are various methods for distribution, including:
- Directly receiving tips and paying workers during the next payroll cycle.
- Using a "tronc system" to distribute tips, which can be managed by an independent tronc operator, such as an appointed staff member or an external payroll or accountancy firm. Employers should provide instructions or a framework for the tronc operator in line with the Code's principles of fairness. If the tronc operator acts unfairly, employers must address this issue.
Transparency: Policy and Records
Employers must maintain a tipping policy when qualifying tips are paid on "a more than occasional and exceptional basis." This policy should be accessible to all workers, including those with disabilities, and distributed either electronically or in print. Agency workers should receive the policy directly or via their agency. Updates to the policy should be communicated clearly.
Employers are required to keep detailed records of all qualifying tips received and the amounts allocated to each worker for three years from the date the tip was paid. Workers may request to see their employer's tipping records, limited to one request per worker every three months, provided they worked for the employer during the period in question. The request can cover up to three years. Employers must comply by showing the total tips received at the place of business and the portion given to the requesting employee, but not the specific amounts paid to other workers. Employers must also comply with data protection laws.
Addressing Employee Concerns
The Code emphasizes that employers should have a fair process for resolving issues and queries from workers, giving equal weight to queries from agency workers and directly employed staff.
Preparing for the Tipping Act
With the Tipping Act's effective date approaching, employers should take several steps to ensure compliance:
- Conduct an audit of current tipping practices, including tronc systems and digital tipping apps, to clarify which individuals and tips fall within the scope of the Tipping Act.
- Draft a tipping policy that meets the requirements of the Tipping Act and the Code.
- Consult with staff about the draft policy and consider any potential collective consultation obligations.
- Establish arrangements for maintaining detailed records of tips.
- Ensure internal processes are in place for responding to complaints and records requests.
Conclusion
The new Tipping Act and its accompanying Code aim to ensure fair and transparent tip distribution for all workers. Employers should act promptly to align their practices with the new legal requirements, fostering a fair working environment and ensuring compliance with the Tipping Act.
