From 1st October 2024, the new Tips Act (Employment (Allocation of Tips) Act 2023) comes into force. This new law prohibits businesses from keeping tips or service charges intended for employees, as well as improving transparency and fairness in the allocation of tips, which includes cash and card payments. Many businesses, such as restaurants, taxis, and hairdressers, will be impacted by this new law. The legislation aims to enhance the income of approximately two million waiting staff and other hospitality employees.
How does the law apply to employers?
As of tomorrow, employers are required to:
- Ensure that all tips and service charges are distributed to employees in full, with minimal deductions, such as those required for income tax.
- When employers have control over or significantly influence how tips are distributed, ensure that the process is fair and transparent.
- When distributing or influencing the distribution of tips, consider the guidelines outlined in the Code of Practice for fair and transparent tip distribution.
- Have a clear written policy in place regarding how tips are handled at your business, and make sure all employees are aware of it.
- Keep a detailed record of all tips paid at your business, including how they were allocated and distributed among employees. Employees must have the right to access this information.
The current draft code of practice states that while employers don’t have to distribute tips equally among all workers, they should use a clear and fair system to decide how tips are allocated. This system should consider factors like:
- Individual or team performance
- Differences in roles
- Length of service and/or seniority
- Customer intent (If a customer expresses a desire to tip a specific employee for example)
How does the law apply to workers?
All workers, regardless of employment status, including zero-hour contract and agency workers, must be treated equally when it comes to tips. For agency workers, the business should pay the allocated tip money to the agency, who must then pay the worker within the same timeframe and deduct only income tax.
Staff who believe their tip rights have been violated can file a grievance with an employment tribunal. The tribunal has the power to award compensation of up to £5,000 and may also extend this compensation to other affected workers, even if they haven’t filed their own claims.
For more information, please visit the GOV UK website.
