Government publishes draft statutory code of practice on tips

The Employment (Allocation of Tips) Act 2023 (the act) was given royal assent on 2 May 2023. It has been described as the biggest legislative shake-up for the hospitality industry in recent history. The act is expected to come into force slightly later than expected on 1 July 2024.

On the 15 December 2023, the government issued a consultation on a draft statutory code of practice supporting the measures in the act (the code).  

The intention of the act is to ensure that tips are distributed fairly and transparently in the workplace. Qualifying tips, gratuities and service charges (tips) must be passed on to workers in full, with very limited exceptions.

Once it is finalised post consultation, the code will provide statutory guidance on how employers can meet the requirements under the act. Employers must have regard to the code when designing and implementing their tipping policies and practices. We have summarised below some key aspects of the draft code:

Type of tips

The code sets out an explanation of the type of payments that qualify as tips, noting that tips can be made by card, in cash or via an alternative method. The determining factor is whether the employer receives or exercises control or significant influence over the distribution of tips. Non-monetary tips (such as a voucher, stamp or token) can also be qualifying tips if they are received or controlled by the employer.

Who it covers

The code explains that the act will apply to all workers - permanent staff, agency workers and zero-hours workers.

Tipping policy

The code highlights that employers should have a written tipping policy (unless they only receive tips occasionally and exceptionally). The tipping policy must cover how tips are accepted, how tips are allocated and distributed, and what steps the employer takes to ensure tips are handled fairly and transparently. The tipping policy should be made available to all staff, either in electronic form or as a physical written document.

Principles of fairness

The code sets out the key principles of fairness for the purposes of allocating and distributing tips and states that employers should apply these when developing and implementing their tipping policy. It states that a fair distribution does not necessarily require employers to allocate the same proportion of tips to all workers.

It also confirms that employers should use a clear and objective set of factors to determine the allocation and distribution of tips and that these factors should be fair and reasonable given the circumstances and the nature of the individual business. The code gives some examples of possible factors to consider such as the type of role or work, basic pay, individual and/or team performance, seniority or level of responsibility, length of service and customer intention. The code reminds employers that these factors should not be discriminatory.

Consultation

The code states that employers should consult with workers to seek broad agreement about the system of allocation of tips, to ensure it is fair and clear.

Distribution

The code gives some guidance on the methods of distributing tips which can be done directly by the employer or via an independent tronc operator.

Timing of distributions

On timing, the code makes it clear that all tips must be distributed to staff by the end of the month following the month in which the tips are paid by customers. For example, if a customer leaves a tip on 23 June, it must be distributed by 31 July at the latest.

Tipping records

The code confirms that employers must keep a clear tipping record giving details of all qualifying tips received and the amount allocated to each worker. This record must be kept for three years after the tip was paid. Workers have the right to make a written request (once in any three-month period) to view that tipping record.

Disputes

Finally, the code states that employers must have a fair process in place for resolving issues – such as following an Acas compliant grievance procedure. If issues are unresolved, a worker may complain to an employment tribunal that their employer has failed to comply with the requirements surrounding fair allocation and distribution, or the requirements surrounding the written tipping policy or tipping records. In determining disputes relating to tipping practices, tribunals will be under a duty to take the code into account.

The code states that further non-statutory guidance will be published in due course to help employers and workers interpret the legislation.

The act is expected to come into force on 1 July 2024 once submissions in the consultation have been reviewed. Businesses should take steps now to consider what arrangements need to be in place to ensure fair allocation and distribution of tips, to prepare a tipping policy and consider an effective mechanism to record tips and deal with requests for records from workers. In doing so, employers must have regard to the code as well as the legislation.