Employment & Pensions blog: Employment (Allocation of Tips) Act 2023 – What employers need to know

The Government has announced that the Employment (Allocation of Tips) Act 2023 (Act) will come into force on 1 October 2024 instead of 1 July 2024. The purpose of the Act is to create fairness and transparency when tips, gratuities and service charges are distributed amongst workers. This is only in relation to tips received by the employer and does not include any worker received tips, such as cash tips, which they are entitled to keep for themselves. 

The Fundamental Rules

With effect from 1 October 2024, employers will need to comply with the following in accordance with the Act:

• Distribute 100% of all tips and service charges to workers without deductions, except in very limited scenarios, such as deduction of income tax. 
• Ensure that tips are distributed in a fair and transparent manner. 
• Have regard to the Government Code of Practice on Fairness and Transparency of Tips when distributing or influencing the distribution of tips. 
• Maintain a written policy on how tips are dealt with at their place of business and ensure the policy is made available to all workers. 
• Maintain a record of all tips paid at their place of business and their allocation and distribution between each worker, to which workers have the right to request access.

Fair Distribution

The Government Code of Practice on Fairness and Transparency of Tips recognises that distributing tips fairly does not necessarily mean the same proportion to all employees. However, if the proportion is different, employers should use a clear and objective set of factors to justify the allocation.  In other words, employers must avoid any form of discrimination during their selection process. The Government Code of Practice suggests that the following non-exhaustive factors could be taken into consideration: 

• Type of role/work e.g. distribution between front of house and backroom workers. 
• Basic pay (and how workers are engaged).
• Hours worked during period when tips are received.
• Individual and/or team performance.
• Seniority/level of responsibility.
• Length of time served with the employer.
• Customer intention. 

Comment

It is important to bear in mind that a failure to comply with the Act (once in force) will give workers the right to pursue a claim at the Employment Tribunal. Workers will be able to pursue a claim against an employer 12 months after their employer allegedly failed to comply with the new rules, which could have significant financial and reputational ramifications on employers. If a finding is made against an employer, Tribunals are empowered to make a public declaration to that effect, to order the employer to revise a previous allocation of tips, make a non-binding recommendation on a previous allocation of tips, or order the employer to pay compensation. Given that there is still some time before those rules come into force, now would be a good time to consider what policies need creating or updating.

For more information, please contact a member of our Employment team.