The key provisions of the Employment (Allocation of Tips) Act 2023 and the Code of Practice on the fair and transparent distribution of tips come into force on October 1, 2024.
There have been concerns that some employers make deductions from tips or withhold a portion of tips for “administrative fees,” for example. The law requires employers to ensure that employees receive “tips, gratuities and service charges” (“tips”) in full and that tips are distributed fairly and transparently.
According to Unite, the union representing hospitality workers, the law will impact over four million tipped workers. Meager:
- All tips paid on or after October 1, 2024, over which the employer exercises control or significant influence must be fairly allocated to employees, including eligible temporary employees
- Full payment (less statutory deductions such as tax and NIC) must be made no later than the end of the month following the month in which the tip was paid
- Employers must have a written tipping policy and maintain records
- An independent Tronc operator can provide tips. A Tronc system is a special compensation arrangement that allows companies to use, for example, an outside accounting firm or payroll company to fairly distribute tips, tips and service fees to employees.
- Employees cannot terminate their rights and can file complaints with the labor court for violations of the law
- The law applies in England, Wales and Scotland
The law applies only to “qualified tipsters” who:
- All tips received from the employer and
- Certain workers received tips
Tips received from the employer are paid by the customer, either by the employer or a person close to the employer. This includes tips paid by credit or debit card and deposited into the employer’s bank account before being distributed to employees, or when the tip is received via a mobile app.
Tips received from the employee, such as cash tips, are paid by the customer but are not subsequently received by the employer or anyone associated with the employer. The law only covers such tips if they are under the control of the employer or if the employer has significant influence over the distribution of tips, such as if the employer directs that all tips be shared among employees or at the end of the shift.
The law applies to employees and eligible temporary workers. Consequently, tips must also be fairly distributed to eligible agency workers, although this may also be done through their agent (provided the agent received the tip from the employer).
How can employers ensure that tips are distributed fairly and transparently?
The code of conduct contains “overarching principles” of fairness. Employers must take this into account when designing and implementing their tipping policies.
Interestingly, the Code states that fair allocation and distribution of tips does not necessarily mean that all employees are paid the same share. However, employers should use fair and reasonable factors to determine their tipping practices, and the Code provides examples:
- Type of role/work, e.g. B. Distribution between front and backroom employees
- Base Wage (and How Employees Are Engaged)
- Hours worked when tips are received
- Individual and/or team performance
- Seniority/level of responsibility
- Length of service
- Customer intent
Employers must avoid unlawful discrimination when selecting and applying the factors.
Independent tronc arrangements, in which an outside accounting firm or payroll company handles the distribution of tips, are common in the hospitality industry. The principles of fairness and transparency still apply. If the independent Tronc acts unfairly or improperly, the employer must take action such as: B. direct the Independent Tronc to change its operations, replace the Independent Tronc, or terminate the Agreement.
Regarding transparency, employers must provide all employees and eligible contract workers with a written policy regarding how they will handle tips. The provision can be made either in electronic form or as a physical copy. You do not need a written policy if tips received from employees do not constitute qualified tips. However, certain information must be provided, including that the employer is not required to have a written policy and the reasons for doing so. Records of all eligible tips received and the amount allocated to each employee must be retained for three years.
Employees may appeal to the Labor Court if written policies and record keeping requirements are not followed and/or the employer has not distributed and paid tips fairly. The deadlines for filing a lawsuit are three months and twelve months respectively. In both cases, the employment tribunal can declare the complaint to be well-founded, order the employer to comply and order compensation of up to £5,000. Please note that an eligible temporary worker can assert the claim against the intermediary in addition to or instead of the employer.
Advice for employers
Before October 1, 2024, employers should review their tip distribution systems, record keeping, and written policies, particularly the factors relevant to “fairness” in the Code. I recommend consulting with employees about the policies. Even if there is no obligation to do so, it will help the employer ensure fairness if employees agree to the policy.
The Code is not legally binding, but is taken into account by employment tribunals in disputes over tipping practices. Therefore, employers should familiarize themselves with the Code.
Finally, Unite recently launched its Fair Pay and Fair Tips campaign. The focus is on ensuring that hospitality workers understand their rights. Unite will “name and shame disloyal employers who seek to ignore or distort the new legislation”.
