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Changes to tipping laws | What employers need to know
Written Toyah Marshall on 9 September 2024
About 7% of UK workers receive tips as part of their work. Many hospitality workers rely on these tips to top up their pay and are often left powerless if businesses don’t pass on service charges from customers to their staff.
To combat this, new legislation, coming into effect this October, will make it mandatory for employers to hand over tips to workers in full, and allocate them in a fair and transparent manner.
Business and Trade Minister, Kevin Hollinrake, said: “Whether you are pulling pints or delivering a pizza, this new law will ensure that staff receive a fair day’s pay for a fair day’s work – and it means customers can be confident their money is going to those who deserve it.”
The background
The Employment (Allocation of Tips) Act 2023 has its origins in the Good Work Plan, which was unveiled by the UK government in December 2018 as a response to the Taylor Review of Modern Working Practices. The Plan aimed to address various challenges faced by workers, including the unfair allocation of tips in the hospitality sector.
Public scrutiny over tipping practices began several years earlier, when media reports and investigations revealed that some businesses were retaining significant percentages of tips or keeping them altogether. This sparked widespread concern and highlighted the need for legislative intervention to protect workers’ rights to their tips.
Following these revelations, the government conducted consultations and gathered evidence on tipping practices, which underscored the need for reform. After several years of legislative delays, the Bill was introduced in Parliament and received Royal Assent on 2 May 2023. The government has since introduced regulations that will bring the Act into force on 1 October 2024, applying to tips paid on or after that date.
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What does the new law require?
Under the Employment (Allocation of Tips) Act 2023, employers must:
- Pass on 100% of tips, gratuities, and service charges to workers. Employers cannot make any deductions from these tips, except those required by law, such as tax or National Insurance contributions.
- Ensure a fair distribution of tips among workers. This involves establishing and clearly communicating a policy on how tips are allocated, taking into account factors like hours worked, job roles, and the quality of service provided. This policy must be accessible to all employees to promote transparency.
- Keep records of how tips are distributed and provide workers with access to this information upon request. This transparency helps to ensure that the distribution process is fair and compliant with the law.
The Act also provides workers with the right to take disputes regarding tip distribution to an Employment Tribunal if they believe the rules are not being followed.
The legislation is supported by a new statutory Code of Practice that provides detailed guidance on how to implement these requirements effectively.
Who does the new law apply to?
The new measures apply to every sector and across England, Scotland and Wales. However, there are some exceptions:
- Occasional or exceptional tips: The legislation does not apply to tips received on an occasional or exceptional basis. For instance, a one-off tip such as a Christmas box or holiday gratuity, which is not part of regular tipping practices, may not fall under the same requirements as regular tips.
- Direct tips: If a tip is given directly to a worker by a customer, and is not processed through the employer or the business, that tip can be kept by the worker. This means that tips given directly to employees (e.g. cash tips handed directly to a waiter or driver) are not subject to the same distribution requirements as tips that are processed through the business.
- Industry-specific exceptions: Certain industries or situations where tipping is not a regular practice might be exempt from some provisions of the law. For example, industries where tips are rare or occasional, such as specific seasonal or non-traditional tipping scenarios, might not be covered by the same rules.
These exceptions are designed to differentiate between regular, systematic tipping and sporadic or personal tipping scenarios. Employers are expected to clearly set out their policies regarding these situations to ensure transparency and compliance with the legislation.
How will the new law impact businesses and employees?
According to the government, the overhaul of tipping practices under the new legislation is set to benefit over 2 million UK workers in the hospitality, leisure, and service sectors. This reform aims to ease cost-of-living pressures and ensure that workers receive their hard-earned money, with an estimated £200 million more going into workers’ pockets as a result.
While the Act aims to create a fairer system for workers, it will also create administrative challenges and incur costs for businesses, particularly those in the hospitality sector. Employers will need to review and potentially overhaul their current practices to comply with the new regulations. This will involve steps such as establishing a written policy on tip distribution, implementing new record-keeping systems, and providing staff training.
Top Tips for Adapting to New Tipping Laws
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That said, there are potential positives for businesses. By ensuring that workers receive the full value of tips intended for them, the legislation could boost staff morale, reduce employee turnover, and enhance the reputation of businesses committed to fair treatment.
Additionally, customers may be more inclined to leave tips, knowing that the full amount will go directly to the workers, while the promise of receiving a fair share of tips might motivate employees to deliver better service, potentially leading to higher customer satisfaction and increased business.
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Need support?
WorkNest is here to help your business navigate the changes brought by the Employment (Allocation of Tips) Act 2023 and ensure you remain compliant with the new legislation.
As specialists in Employment Law and HR support, we can:
- Assist you in developing and updating your policies on tip distribution to ensure they comply with the latest legal requirements and best practices.
- Keep you up-to-date with legislative changes, providing expert guidance and support to help you implement the necessary adjustments smoothly.
- Help you to manage tipping disputes efficiently and effectively and protect your business in the event of an Employment Tribunal claim.
For support, contact our team on 0345 226 8393 or request your free consultation using the button below.
