Earlier this year, a new Code of Practice on the fair and transparent distribution of tips was published and laid before Parliament. It will have legal effect under the long-awaited Employment (Allocation of Tips) Act 2023.
Temporary delay buys more time for preparation.
The new regime was set to come into force on 1 July 2024, following approval by parliament, but is now pushed back to 1 October 2024. Whether the general election will mean another slide to the timetable remains to be seen.
Employers have, however, been urged by the government to follow the new requirements now, even before they have legal force. Certainly, the run-up to October would be well used to check that everything that’s needed for compliance is in place and ready for the point at which the legislation finally gets over the finishing line.
Change stems from concerns that employees are losing out on tips, gratuities and service charges left by customers, and the new measures make it unlawful for businesses to retain tips rather than passing them on to employees without deductions. This will be particularly relevant in the hospitality, leisure and services sectors, but will apply across the board to all industries.
What’s coming?
Setting out ‘overarching principles on what fairness is’, the new Code must be taken into account by employers when designing and implementing tipping policies and practices. Compliance with the Code matters, because, for example, where a case is taken to the Employment Tribunal in a dispute over tipping, employer compliance with the Code will be considered.
Briefly, under the new requirements, employers must:
- Pass on all tips to workers without deductions (limited statutory deductions excepted).
- Ensure tips are distributed in a fair and transparent manner, wherever the employer controls, or exerts a significant influence over their distribution. Many businesses currently operate what is known as a tronc system to allocate tips. Such arrangements, so long as operating fairly and independently, are also permitted under the new rules.
- Ensure tips are distributed in a fair and transparent manner, wherever the employer controls, or exerts a significant influence over their distribution. Many businesses currently operate what is known as a tronc system to allocate tips. Such arrangements, so long as operating fairly and independently, are also permitted under the new rules.
- Have regard to the Code when distributing or influencing the distribution of tips.
- Pay tips to workers by the end of the month following the month in which received, at the latest.
- Have a written policy on how they deal with tips, and make this available to all workers.
- Keep records of all tips paid, and their allocation to each worker. Workers have the right to request access to their own records and to the total received by the employer.
Arrangements where tips are received by workers without employer control or involvement are not impacted by the new rules. Note, too, the rules apply in England, Scotland and Wales, but not Northern Ireland, where employment matters are devolved.
None of the new measures change the existing rules for tax and National Insurance. These can be tricky to deal with in themselves, and we are always happy to provide guidance here.
We are also on hand to help with preparation for the changes expected in October.
