The Employment (Allocation of Tips) Act 2023

Have you ever left a tip and wondered whether all of it will be going to the person you actually tipped?

Currently there is no legislation governing the percentage of tips that must go to the employee. The current legislation in this area only states that tips cannot be included as part of a person’s pay for the purposes of the national minimum wage.

Back in 2009 when the government made this change, it also produced a Code of Best Practice which encouraged transparency for the customers and employees. However, this did not provide legal remedies to employees who were short changed.

In response to this, the government consulted again in 2016, the conclusion of which led the government to propose legislation in 2018 with the detail of the changes to be made clear.

What’s the update?

The Employment (Allocation of Tips) Act 2023 has received royal assent.

This will bring into law the following changes;

• Employers must make sure all tips and service charges are allocated fairly between their workers.
• A Code of Practice will be published in due course which will include guidance on what will be regarded as a ‘fair’ allocation.
• Employers must have a written policy setting out how they deal with tips.
• Employers must keep records of all tips and service charges received for three years.

There will also be a mechanism for workers to bring claims to enforce the new rules and also claim further compensation on top as follows:

• There is a 12 month limitation period on workers bringing claims for non-compliance. This sets it apart from most other employment claims which have a 3 month limitation period. 
• One of the remedies available for breach is that tribunals can compel employers to revise their tip allocation policies. 
• Tribunals can order the employer to pay tips and services charges not just to the Claimant, but to any workers employed by the employer. 
• Compensation of up to £5,000 per Claimant might be payable to reflect additional financial losses caused by non-payment.

These changes are due to come into force in mid 2024.

What can employers be doing to prepare?

• Have a look at policies and practices on tips and service charges.
• Review if any tips are being withheld
• Whether deductions are being made
• Introducing a clear policy on the distribution of tips (guidance for introducing new policies here!)

Not only will this help ensure your business is prepared in advance, but it will also support organisations in attracting and retaining the best staff in a competitive market.