Employment Law changes – Allocation of Tips Act 2023

Posted on September 26, 2024

October sees a huge raft of employment legislation and changes for business owners across a wide range of industries, Labour promised to make a difference within 100 days of getting into Number 10 and the first of those changes concerns the allocation of tips and it is something employers need to be aware of.

For employers whose employees receive tips as part of their daily work, there are now new employment laws to ensure fair distribution of tips among workers.

“The aim of the new legislation is to improve transparency and ensure a fair distribution to staff when clients have tipped,” said Solicitor and Employment Law Partner, Susan Mayall.

“When eating or drinking out in a restaurant or bar I always check that the staff who are serving do actually receive any tips given, as time has passed the answer is generally ‘yes’, however if any employers still do not pass on tips given for staff then from October 2024 this will be unlawful,” added Susan.

Employment (Allocation of Tips) Act 2023

The Allocation of Tips Act comes into effect on October 1^st and is a significant change in how tips are dealt with in service-based industries and it aims to address long-standing concerns about fairness when it comes to tipping by seeking to establish clear guidelines for the distribution of tips.

Code of Practice on Fair and Transparent Distribution of Tips

It is a perennial debate about who gets what when it comes tips and for a long time it was at the discretion of employers. This often led to inconsistency, unfairness (with employers sometimes keeping a percentage of the tips) and claims of favouritism.

Mandatory Allocation of Tips to Workers: Employers are no longer allowed to keep a percentage of tips for themselves. Under the new law all gratuities must be paid in full to staff and employers must comply with all relevant legislation, including ensuring that tips do not count towards the National Minimum Wage.

Fair and transparent distribution: They should be divided fairly among all eligible staff, in hospitality this includes both front and back of house staff. Employers should be able to show equal and transparent division and the process should be recorded and documented to prove legal compliance.

Prohibition on Deductions: From October 1^st all employers are not allowed to deduct anything from employees' tips, apart from what is required by law, (e.g., tax deductions).

Penalties for Non-Compliance: Workers who still feel they are treated unfairly and believe the allocation tips in their place of work is incorrect have the right to take legal action against their employers. Businesses that fail to comply can be fined and staff have a new right to request a copy of their tipping record, in order to enable them to bring a claim to the Employment Tribunal where they believe they are not receiving tips they should be.

Changes to workplace policies

As with all employment law changes it is a good idea to review your policies and update any documentation to cover the changes in legislation. It is also important to inform your employees of any changes. Your allocation of tips policy should outline how tips are collected, who is eligible to receive them, and the distribution method.

“The law is expected to have a positive impact on workers in the service industry, ensuring they receive a fair share of the tips they earn. It also provides greater transparency, helping to build trust between employees and employers. For businesses, while the law may require changes to workplace policies, it is seen as a necessary step to ensure fairness and improve workplace morale,” added Susan.

UK employment law is evolving to better protect employees' rights to tips and gratuities. While existing laws provide some protections, the Employment (Allocation of Tips) Act aims to further safeguard these rights, ensuring transparency and fairness in the distribution of tips. Employers must be mindful of these legal obligations and ensure that they manage tips in a way that is fair and compliant with the law.

How can we help?

At Pearson Solicitors our designated employment lawyers for businesses can offer legal advice on changes in employment law, contracts and workplace policies. For further information on our employment legal services contact our employment solicitors on 0161 785 3500 or email enquiries@pearsonlegal.co.uk

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.