From the 1st of October 2024, the law requires businesses to give qualifying tips to their workers. This change is set under the new Employment (Allocation of Tips) Act 2023 drafted by the new Labour government.
Employers now have a lawful obligation when it comes to managing tips, including cash-in-hand and service charges. Without proper compliance, businesses could end up facing serious financial and judicial consequences.
In this guide, we’ll look at what the Employment (Allocation of Tips) Act is, why it was passed, and how to encourage fair tips allocation between relevant staff.
What is the Employment (Allocation of Tips) Act?
The Employment (Allocation of Tips) Act 2024 is a new legislation that states businesses must distribute all qualifying tips to workers – without making deductions.
In the past, many hospitality workers were denied tips paid to them by consumers. That’s because it was common to assume cash tips belonged to the business. This includes credit card and service charges paid by customers, too.
From the 1st of October 2024, these practices are now unlawful under employment law. Employers should embrace the legislative change fully – promoting fairness and compliance with the new tipping act.
What is covered under the Employment (Allocation of Tips) Act?
There are five main areas covered by the Employment (Allocation of Tips) Act. Let’s take a closer look at them:
- Employers have a legal obligation to allocate all qualifying tips, gratuities, and service charges to workers without making deductions. The act also states qualifying tips must be fairly allocated between workers.
- Employers must comply with the statutory Code of Practice on fair tips distribution. The Code provides a list of factors businesses should consider when managing qualifying tips.
- Employment tribunals have new powers over businesses who are guilty of unfair tips distribution.
- Employers must have a written policy stating how qualifying tips are managed within their business. Workers also have the right of access records on their personal payments.
- Any employer who doesn’t have control or significant influence over tips may not qualify for compliance. For example, if tips are paid directly to workers in cash and kept by them; or if tips are informally collected by staff members.
How to apply the Employment (Allocation of Tips) Act within your workplace
Tips and service charges are a normal practice in certain sectors, like hospitality, tourism, and the food industry. Workers are valued for their excellent service skills – where they’re rewarded through tips. It’s seen as a much-needed additional income to balance out their low wage rates.
It’s important for employers to acknowledge what the new law requires when it comes to managing tips. Let’s look at how to apply the new tipping act 2024 for your business:
Create a written tips policy
Employers should start with creating a tips policy for their business. This written document should highlight if their business:
- Requires or encourages customers to pay tips, gratuities, and service charges.
- Ensures that all qualifying tips are managed lawfully.
- Plans to share all qualifying tips between workers.
Workers are allowed to request information about tips distribution. They can make a written request every three months. They also have a right to raise tribunal claims if they believe their tips were unfairly distributed.
Define what fair tip distribution means
The next step employers should take is clearly defining what fair tip distribution means. This definition must comply with the current employment law.
Under the new act, a fair tip distribution is defined through several factors based on individual employees. For example, their work experience, job responsibilities, service length, and seniority level.
The legal definition is also added to the statutory Code of Practice. Through both lawful guidelines, businesses now have a more transparent idea of what fair tip distribution consists of.
Invest in the tronc system
The next step employers should follow is investing in a tronc system. This system operates externally from your business which promotes optimum clarity when it comes to managing tips.
It also works alongside your PAYE scheme, as well as HMRC regulations – making it easier to calculate all financial outgoings.
Get expert advice on the Employment (Allocation of Tips) Act with Peninsula
The new tips act may present additional obligations for some businesses. However, fair pay is long overdue, especially in the food and hospitality sector. Employers must prepare for the legal change through proper compliance and procedures.
Peninsula offers expert advice on the Employment (Allocation of Tips) Act. We also offer 24-hour HR advice – ensuring your business complies with all lawful obligations connected to tipping.
Want to find out more? Contact us on 0800 028 2420 and book a free consultation with an HR consultant today.
