New law on staff tips coming 1st October 2024

You may remember last year, the Conservatives said that they would be bringing in new rules on how to manage staff tips in a bid to stop businesses from unfairly withholding tips from their workers.

And now, under the new Labour government, these new rules will take effect from 1st October 2024. From this date, by law, all employers will have to manage “qualifying tips” in line with fair and transparent criteria.

So to make sure you understand exactly what that means and whether this new law affects you, here’s what you need to know.

Firstly, what is the new law on tips?

Currently, there’s no law in place to say that employers can’t withhold tips from their staff.

At present, this means your business does have the right to keep any and all tips your staff receive from customers or make deductions from them if you wish. (Although, you should consider the impact this might have on employee morale).

But under this new law, you’ll have to make sure your staff receive any qualifying tips in full and you’ll need to follow a fair process to “allocate” them.

How do you fairly allocate tips to your staff?

If you’re in charge of the tips your business receives, the new law says you’ll have to make sure you “allocate tips” fairly to your staff.

In other words, you’ll have to make sure your workers receive their fair share of the qualifying tips you get from customers – whether that’s a tip they paid by cash or card.

This doesn’t mean you have to share all tips out equally or give everyone a share of every tip, but you should follow a fair and objective set of factors to decide how much everyone gets. You might want to consider the customer’s intention, your worker’s role and other factors. And you should also consult with your staff to reach some kind of agreement on the criteria you use.

To help you allocate tips in line with fair principles, the government has published a statutory code of practice for you to follow. You can find this code on their official website.

What is a “qualifying tip”?

Note that this new law says there will be rules around “qualifying tips”.

Now, by “qualifying tip”, they mean either:

• an employer-received tip – a tip you or your business receives that you then distribute to your staff
• a worker-received tip – only if you have influence or control over the tip your worker receives

This new law doesn’t apply to situations where your worker pockets a tip and you have no involvement. This may be the case if your worker accepts a tip from a customer directly or a customer digitally tips your worker and you don’t have control over that money.

In either scenario, this new law doesn’t apply. It only applies if you have control or influence over the tip. For example, you might have a rule in your business that says you collect all cash tips and share them out with your workers.

If you always allow staff to take home tips without you being involved, this new law doesn’t affect you as much. However, you will still need to review your existing practices to make sure you’re aware of and in line with any new requirements.

Be aware that a qualifying tip doesn’t always have to be money. In legal terms, it could also be a voucher, stamp, token or similar item. As long as the item has a fixed monetary value and you can exchange it for money, goods or services, it could qualify as a tip.

What should you do under the new law if you do manage staff tips?

If you’re in charge of the tips your workers receive and are responsible for sharing them out, you will have to follow specific rules from 1st October 2024.

Firstly, as mentioned, you’ll have to make sure your workers receive the total amount of all qualifying tips – shared out according to a fair set of criteria. You can’t deduct or withhold any amount of tip, except in very limited circumstances like making deductions for income tax.

Secondly, you’ll have to make sure you allocate any tips to staff by the end of the month following the month they first received them

Thirdly, if you receive qualifying tips on more than an occasional or exceptional basis, you’ll have to keep a record of any tips you allocate to your staff for up to three years.

Your staff will also have a right to request to see their own record and can ask to see their record from the past month to up to three years back. That’s as long as they were employed for the full period they’re requesting.

They’ll be able to ask to see their record once every three months. So, you’ll need to make sure it’s always up to date or they could raise a claim against you.

And lastly, if you receive qualifying tips on more than an occasional and exceptional basis, you will need a written tipping policy. This policy should be available to all your workers and in a format that’s easy to access.

Your policy should clearly outline:

• Whether you require or encourage customers to pay tips
• How you manage tips and share them with your staff

Unless your policy clearly explains your worker’s entitlements, you won’t be meeting your legal obligation.

Can you get in legal trouble for not following the new rules?

After 1st October 2024, your worker could make a tribunal claim against you if:

• you don’t share qualifying tips with your staff according to the statutory code of practice
• you don’t allocate tips within the set timeframe
• you don’t have a written policy (and you get tips on more than just an occasional basis)
• you don't have a tipping record (and you get tips on more than just an occasional basis)

Your worker could raise a claim from the first day you didn’t comply. So, now’s the time to make sure you’re on board with the process if you want to avoid running into risk down the line.

If you have any questions about the new law or any concerns about how this will affect your business, don’t hesitate to book in for a free advice call with one of our advisers. Got a query for an employment law expert? Tap below: