Fair Distribution of Tips 
The Employment (Allocation of Tips) Act 2023, which comes into effect on 1 October 2024, makes it mandatory for all tips to be passed on to workers without deductions, other than those required by tax law. Once a customer has paid a tip, the Act also requires that the allocation and distribution must be done no later than the end of the following month.
Although cash tips paid directly to a worker generally become the legal property of that individual, payments made by card are paid directly to the employer and become the legal property of the employer. It is the intention of the Act to prohibit the practice, currently adopted by some hospitality businesses, of retaining all or part of tips paid by card instead of passing them on in full to staff.
Businesses where tips are left more than occasionally will be required to have a tipping policy to distribute tips in a way that is fair, transparent and consistent and to keep a record of how tips have been dealt with for three years from the date received. In addition, they will be required to abide by a new statutory code of practice on fair and transparent distribution of tips, which can be found here:
Where an employer does not receive or exercise control or significant influence over tips, including where tips are paid directly to workers in cash and kept or informally pooled by workers, the Act does not interfere with existing tipping practices.
Workers will have the ability to bring a claim in an employment tribunal where there has been a failure on the employer’s part to comply with the allocation and payment of qualifying tips. The time limit for bringing such claims is 12 months from the date of the failure. A worker can also make a complaint to a tribunal where the employer has failed to comply with their obligation to have a policy on the fair distribution of tips or keep records of allocations of tips. Such claims must be brought within three months of the employer’s failure.
If an employer fails to comply with the new legislation, the employment tribunal can make a public declaration, and award compensation of up to £5,000. The compensatory award can also be made for workers at the relevant place of business who have not made a complaint to a tribunal.
Associated policy and letter templates are available in the Employment Folder: