If your business operates in the hospitality, leisure, or service industries then you and your teams will likely already be aware of the new Employment (Allocation of Tips) Act 2023 that comes into force on 1st of October.
This new legislation creates a positive duty on employers to allocate all tips fairly amongst their workforce and applies to any business where tips are received more than occasionally.
Alongside the Act a new statutory Code of Practice on Fair and Transparent Distribution of Tips also comes into force.
What are the key features of the Act?
Below we’ve outlined the headline features from the Act, and we’ll dive into more detail on each one as we go through the article.
– employers are required to pass on tips in full to workers.
– all tips must be allocated in a fair and transparent way.
– tips must be distributed within one month following the month they were received.
– workers have a right to request a copy of their tipping record in order to bring a claim to Employment Tribunal for unpaid tips.
– employers must keep a record of how every tip was dealt with for 3 years.
– employers must have regard to the new statutory code of practice when distributing tips.
– any businesses where tips are left more than occasionally must have a tipping policy in place.
Do all tips qualify under the Act?
The Act only applies to qualifying tips which are categorised in two ways:
1. All tips received by the employer
This is when the employer receives the tip directly (for example via card payments or through a mobile app) and is then responsible for distributing it.
2. Certain tips received by the employee
If the employee receives the tip but the employer has significant control over how that tip is then distributed (for example where tips are pooled and shared out equally amongst staff).
If a worker receives a tip directly (whether cash or electronically) with no employer control or involvement, then this tip would be outside the scope of the Act.
Do all workers qualify for tips under the Act?
This Act applies to all workers apart from the self-employed. It also applies to eligible agency workers not directly contracted by the employer.
Agency workers may receive their tips via their hiring agency and will only be deemed eligible if:
– they are supplied by an agent under contract
– they are not a direct worker of the employer
Employers are required to pass on tips in full to workers
All tips, gratuities and service charges fall under this new legislation and must be fairly allocated to workers. Tips can be paid as part of the main payroll cycle or by using a tronc, which is an arrangement/system used to pool and distribute tips among employees.
The tronc can be an internal member of staff or an external payroll or accountancy firm. To comply with the code of practice the tronc must operate independently and fairly.
All tips must be allocated in a fair and transparent way
The legislation requires employers to use a method of distribution for tips that is fair and transparent, but it does not outline a specific approach. Instead the accompanying statutory code of practice defines the meaning of fair and provides examples of what fair means in practice.
The code recommends that clear and objective factors be used when deciding how to allocate tips, and that these must be shared with workers upfront. Some examples from the code are shown below, but the employer has final say on exactly which factors they wish to adopt.
– number of hours worked when the tip was received
– the seniority of the worker
– the workers length of service
– individual and team performance
Tips must be distributed within one month
Payment of all tips must be made no later than the end of the month following the month in which the tip was paid by the customer. For example a tip paid on 15 October would need to be paid to the worker by 30 November. Employers must pay the tips in full less any deductions required by law such as tax and NIC.
Workers have a right to request a copy of their tipping record
If employees believe they are not receiving all the tips owed to them, they can request to see the tipping records. The employer must comply with these requests within 4 weeks. Requests can only be made once in any 3-month period.
If an employer deducts a sum from a qualifying tip for anything other than a statutory reason (such as income tax) they may be liable in the Employment Tribunal.
Employers must keep a record of how every tip was dealt with for 3 years.
The Act puts all responsibility on the employer to maintain clear and accurate records of all tips received and how they were distributed amongst staff. This formalising of the tips process may require employers to invest in new systems to support the creation of these records and to ensure they are fully accessible at any time.
Employers must have regard to the new statutory code of practice when distributing tips.
The accompanying statutory code of practice also comes into force on the 1st of October. Although not legally binding, Employment Tribunals will take this into account when dealing with tipping disputes, so employers should ensure they are fully familiar with this document.
You can find a copy here.
Any business where tips are left more than occasionally must have a tipping policy in place.
The Act requires any business that receives tips often to have their own tipping policy in place. The policy must be shared with all workers to ensure they fully understand how the policy will operate. The Act does not stipulate what must be in the policy or how it should be communicated, so employers may find it useful to seek expert guidance on this aspect.
To fully comply with the Act, employers must ensure that all staff have seen and had the tipping policy explained to them, as workers can complain to the Employment Tribunal if they believe any aspect of the policy or record-keeping has not been met.
Who is responsible for paying the tax on tips?
Where the tips are distributed via the employer, they are responsible for deducting the necessary tax and national insurance contributions. If a worker receives tips directly from the customer and there is no tronc system in place then they are responsible for reporting these tips to HMRC in order to pay the tax owed on them.
What should employers do now?
From 1st of October affected employers should ensure they have a tipping policy in place that is in line with the new legislation and has been shared with all qualifying workers. Where a tipping policy is already in place it would be sensible to review this alongside the new code of practice and make any adjustments as necessary.
A clear process should be implemented that ensures all tips can be tracked and recorded accurately and distributed fairly. The new code of practice should be shared with all managers, so they are fully aware of how to manage this with staff.
How we can support you
If you need advice on any aspect of this Act or you’d like help to implement your new policy and process, our friendly team are on hand to help. We’ll cut out the jargon and explain the legislation in simple terms so you can quickly and easily take the actions needed to bring your workplace up to date.
Get in touch with us today for an informal chat.
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