Change is on the way for employers that receive tips from customers; from 1 October 2024 the new tips law will require ‘qualifying tips’ to be fairly allocated to workers. It also places several other requirements on employers who deal with tips, so to help you understand the new obligations and what you need to do to prepare, here are our top tips on the new tips law. 

Are they ‘qualifying tips’?

The first thing to consider if an organisation receives tips from customers is whether they are ‘qualifying tips’. This is because employers will be required, from 1 October 2024, to ensure that the total amount of ‘qualifying tips’ that is paid at, or otherwise attributable to, a place of business of the employer, is allocated fairly between its workers at that place of business.

‘Qualifying tips’ include both employer-received tips and certain worker-received tips. An employer-received tip is an amount paid by a customer by way of tip, gratuity, or service charge which:

a)     is received upon its payment or subsequently by the employer or an associated person, or

b)     is received upon its payment by a person under a payment arrangement made between the employer and that person.

A worker-received tip is an amount paid by a customer by way of a tip, gratuity, or service charge which:

c)     is received upon its payment by a worker of the employer, and

d)     is not subsequently received by the employer or an associated person.

For a worker-received tip to be a ‘qualifying tip’ it must be subject to employer control. This is when the employer or an associated person exercises control or significant influence over the allocation of the tip. For example, if cash tips are collected up by the employer and then distributed out to staff, this is a worker-received tip that falls under the definition of a ‘qualifying tip’.  

Check out BrAInbox for instant answers to questions like:

What is a qualifying tip when it comes to the new law on fair allocation of tips?

When the new law on tips is introduced, can I make any deductions when paying tips to employees?

When the new law on tips comes into effect, do I have to share tips equally amongst staff?

What is fair allocation?

Once an employer has established that ‘qualifying tips’ are received by the organisation, then the next step is to consider how to fairly allocate them. Employers must have regard to the code of practice on fair and transparent distribution of tips when they are considering what fair allocation is.

The code sets out a list of factors that employers may wish to consider including the following:

·       Type of role or work

·       Basic pay

·       Individual and/or team performance

·       Seniority or level of performance

·       Length of time served with the employer

·       Customer intention

Once employers have considered what they believe to be a fair allocation, they need to consult with their workers to reach broad agreement.  

Set out the company stance in a written tips policy:

Once an employer has broad agreement as to how they will fairly allocate ‘qualifying tips’ it will need to all be set out within a written tips policy.

However, if qualifying tips are only paid on an ‘occasional and exceptional basis’ then a written policy is not needed. There is, however, no definition in law about what amounts to ‘occasional and exceptional’. The code gives the example of a clothing shop which only receives tips from customers a few times a year as being an example of ‘occasional and exceptional’.

If tips are received by customers but they do not fall within the definition of a ‘qualifying tip’, whilst a written policy is not needed, the employer still needs to write to workers to explain why.

Maintain a tipping record:

Where qualifying tips are paid at, or are otherwise attributable to, a place of business of an employer on more than an occasional and exceptional basis, the employer must also create a tipping record to show how qualifying tips have been dealt with. It must be kept for three years, beginning with the date on which the qualifying tip was paid. Staff can make a written request to view the tipping record but there are specific rules about it, for example, a worker is only able to see the records that relate to them, not anyone else. 

It’s important to get all this right because workers can bring claims to an employment tribunal if it’s not done correctly. Contact the HR Advisory Service to discuss how this new law impacts you.