The Employment (Allocation of Tips) Act 2023 comes into force on 1 October 2024. What does this act mean for employers and what can they do to prepare?
The Act aims to ensure that workers receive tips in full, and that those tips are allocated in a fair and transparent way. Alongside the legislation a Statutory Code of Practice has been issued. This sits alongside the new law and failure to comply with it can be admissible in an employment tribunal. Tribunals will also be required to take it into account.
Key Changes
- Employers that pay ‘qualifying tips’, service charges and gratuities to their employees on more than an “occasional and exceptional basis” will need to have a written policy in relation to tips.
- Employers must keep records of tips distributed for three years. These records must be available to staff upon request.
- Qualifying tips must be paid out in full no later than the end of the month following the month that the tip was given.
- Employers cannot deduct money from tips to cover admin or card transaction fees.
- Agency workers may be eligible and if so their tips can be paid to the agency.
What is a qualifying tip?
The Act applies to all ‘employer received’ tips. This includes things like tips or services charges (whether mandatory or discretionary) paid by a customer on a credit or debit card. The Act also applies to certain ‘worker received’ tips. This typically refers to tips paid in cash directly to a worker.
‘Worker received tips’ will only fall within the remit of this legislation if they are subject to employer control. Employer control means influence over how the tip is allocated. For instance, if it is a matter of policy that tips are divided up between staff.
If a worker receives a cash tip from a customer and there is no policy which prevents them keeping it to themselves, then this Act will not apply.
How should tips be allocated?
Neither the Code nor the legislation mandate that all workers receive the same proportion of tips that are received. It may be fair for some workers to receive a higher proportion of tips than others.
The Code provides that tips should be distributed by reference to clear and objective factors that are both fair and reasonable. The factors include individual or team performance, customer intention and type of role. Naturally, tips should be distributed in a way that is not discriminatory.
Requirement to have a policy
There is no definition for what is more than an “occasional or exceptional basis “ but the legislation and the Code suggest that the bar is low. The Code states that a shop that receives tips a few times a year would not need a policy.
The policy must contain written guidelines of how tips are allocated and it must be available to all workers at the place of business.
Penalties
A worker can make a claim against their employer in relation to a failure to allocate or pay tips. The tribunal may change the allocation of tips or make a payment to workers, and not only the person who made the claim. The tribunal can also award up to £5,000 of compensation for financial loss.
Workers can also make a claim to the tribunal where their employer fails to have a policy or retain records. A tribunal may order the employer to comply, and may also order compensation of up to £5,000 for financial loss.
Conclusion
Employers who regularly receive tips need to make sure they are ready in advance of 1 October 2024 when this Act comes into force. A written policy will need to be put in place and staff will need to be aware of the policy and its contents. Employers will also need to ensure that systems are in place to keep records of tip distribution.
If you have any questions on any of the issues raised in the above article, please contact Natalia Milne.