On 1st October 2024, the provisions and regulations of the Employment (Allocation of Tips) Act 2023 came into effect. It introduced significant changes to how tips, gratuities, and service charges are distributed by employers. Its aim is to promote fairness and transparency and prevent employers unreasonably making deductions or unfairly distributing payments.
As a hospitality business, how does this new legislation affect you?
The Act applies to tips, service charges, and gratuities that are controlled or influenced by employers. ‘Controlled’ or ‘influenced’ means collected, allocated and distributed by the Company. Cash tips given directly to and kept by employees are not covered. Employees who receive cash tips this way are still responsible for their own declarations to HMRC.
Key responsibilities for employers now include:
- No Unfair Deductions: Employers must pass on 100% of tips to employees, with the only allowable deductions being for tax and National Insurance.
- Fair Distribution: Tips must be distributed fairly and transparently, following the government’s Code of Practice. All employees, regardless of their role, must receive a just share based on their contribution to service. Gratuities/Service charges cannot be split across sites. They can only be distributed to those working in the site that collected them (see code of practice for further details
- Written Policy: Employers are required to create a clear, written policy outlining how tips are collected and shared, which must be made available to all workers.
- Record-Keeping: Detailed records of all tips and their distribution must be maintained to ensure transparency and compliance. Employees can request access to records but there are T and Cs around timeframes and GDPR compliance.
- Agency Workers: The Act extends to all workers, including agency staff, ensuring that everyone is treated fairly and receives their share of tips.
Payment Deadlines
Employers must ensure that tips are paid to workers no later than the end of the month following the month in which the tips were received. For example, tips collected in October must be distributed by the end of November.
What Should Employers Do?
- Review your tipping practices: Make sure all tips and service charges are being fairly distributed to employees.
- Create a written policy: Ensure you have a transparent tipping policy in place and share it with all staff members. This is a specific requirement of the legislation.
- Keep accurate records: Implement a system to record the receipt and distribution of tips.
- Understand the Code of Practice: Familiarise yourself with the official guidelines for fair tip distribution: https://www.gov.uk/government/publications/distributing-tips-fairly-statutory-code-of-practice/code-of-practice-on-fair-and-transparent-distribution-of-tips-html-version
- Consider using a third party Tronc provider. This will ensure transparency and fairness, as well as give more of the gratuities and service charges collected as those distributed through a tronc do not attract National Insurance deductions, making it a win-win for employee and employer.