The Employment (Allocation of Tips) Act 2023, which legally obliged employers to pay all tips, gratuities and service charges to staff in full, received Royal Assent on 2 May 2023.
The new legislation is estimated to affect around two million hospitality and leisure workers in the UK, often paid minimum wage and relying on tips to make up a large proportion of their income. So, what is the new law on tipping in the hospitality industry?
Background
There have been long-standing concerns that all tips and gratuities were not being passed onto workers. Before the new legislation, there were no rules regarding tips paid via card payment. While cash tips legally belong to the employees, it was up to the employer whether they kept tips made by card payment or passed some or all of them to their employees. It is currently not unusual for employers to deduct processing fees from tips and gratuities, leaving workers with less than customers may believe they are receiving.
The New Legislation on Tipping in the Hospitality Industry
The new law requires employers to ensure that all tips, gratuities and service charges they receive or exercise control over are paid to workers in full without deductions (minus tax or National Insurance deductions) and by the end of the following month in which the tip was paid. The law will also oblige employers to ensure that the allocation of tips between workers is operated on a fair system.
A statutory Code of Practice will accompany this legislation and give employers guidance on ensuring that tips are distributed fairly and transparently.
Other key points that employers should be aware of are:
- Employers will have to have a written policy setting out how tips will be allocated
- They will also have to keep records of how tips have been dealt with as workers will have the right to request more information about their employer’s tipping record
- In the event of a dispute, a worker can bring a claim to the employment tribunal
- Employers will be prohibited from making any deductions from tips. This also includes credit card fees, bank charges, payroll or other administration costs. These costs will now have to be covered by the business
- The law also covers agency workers, who are to be given new rights and must be awarded tips on the same basis as directly employed staff.
When will the Legislation Come into Force?
Although the legislation has received Royal Assent, the new rules are not the law yet. Following a consultation and secondary legislation, its main provisions are expected to come into effect in 2024. A date should be confirmed later this year.
What Should Employers in Affected Industries Do Now?
As the Act will not come into force until 2024, employers have some time to prepare and adapt their practices. Some of the matters employers may need to give some thought to include:
- A plan for absorbing the banking and administration costs of handling tips and service charge payments by card.
- How will they decide who has earned a tip? Should tips only go to waiting staff or include others such as kitchen staff, reception staff and managers?
- How to fairly share out tips where there are different levels of tips earned in different shifts. Tips are liable to be better in the evening when there is a younger mix of staff than in the daytime when older staff with families are more likely to be working. However, are older and female employees disadvantaged in dividing tips in this way?
If you have any further questions about the new rules on tipping or need to understand how your business will be impacted, please contact our Employment team at Witan Solicitors or email us.
Photo by Miguel Á. Padriñán
