New Tipping Rules: Fair Allocation of Tips Policy

The Employment (Allocation of Tips) Act 2023 (the Tips Act), 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.

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 Tips 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:

https://assets.publishing.service.gov.uk/media/66a76a35ab418ab055592e86/statutory-code-of-practice-on-fair-and-transparent-distribution-of-tips.pdf

The Tips Act places weight on the employer’s duty to be transparent when it comes to tips and how they are allocated and distributed. To ensure transparency, the Code of Practice states that employers will be required to consult with workers to seek a broad agreement that the allocation of tips is fair, reasonable and clear. 

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 Tips Act does not interfere with existing tipping practices.

Workers will also have a new right to request an employer’s tipping record so they can bring a claim to an employment tribunal if they believe they are not receiving the tips to which they are entitled.  In connection with this, workers have a right to request information relating to their employer’s tipping record over a specified period during which they had worked for the employer, within the last three years. Employers will need to respond to a request for information within four weeks.

Simply-Docs has produced a set of documents to help employers comply with their obligations under the Tips Act to: 

• allocate tips to workers ‘fairly’
• have a tips allocation policy and 
• retain records of allocation of tips.