The Employment (Allocation of Tips) Act 2023 (the Act) comes into force from 1 October 2024 and is expected to be the most radical legislative change for the hospitality industry in recent history.
The aim is to ensure that 100% of tips (subject to the necessary tax deductions) reach workers in a transparent and fair way. The Act was originally expected to come into force on 1 July 2024.
The new regime
The Act creates a legal obligation on employers to allocate tips and service charges fairly and transparently and without any deductions other than mandatory deductions like tax, student loan, or pension contributions. It also requires that all tips are distributed to staff by the end of the following month in which the tip was paid by the customer at the latest. The employer must also have a written policy which is made available to all workers on how tips are dealt with, keeping a record or all tips paid out and how they are allocated.
The regime applies to all workers regardless of how long they may work with the employer, this includes agency workers who may only be engaged for a single shift.
The Act is accompanied by a new statutory code of practice that employers need to consider when allocating tips. This statutory code of practice encourages employers to consult with their workers to seek broad agreement in the workplace that the system of allocation of tips is fair, reasonable and clear.
What are tips for the purpose of the Act?
The Act considers all sorts of tips, whether they are in the form of change left on the table at the end of the meal or paid as a service charge through the card machine when the customer pays their bill. For a tip to qualify under the act, the distribution must be influenced or controlled by the employer.
The written tips policy
Employers are required to have a written tips policy which needs to cover how tips are accepted and distributed by the employer. It should also include details on whether customers are encouraged to tip, how tips are allocated and what steps the employer takes to ensure tips are handled fairly and transparently.
Further, the policy needs to be available to all staff. Whilst this can be electronically, in a busy kitchen with agency workers who may only be there for a single shift, we would recommend a hard copy is visible on a notice board and all new staff are directed to it.
Workers should be informed of any changes to the policy and the code of practice recommends that workers are consulted prior to any proposed changes being made.
How to be fair and transparent
The code sets out the key principles of fairness and includes some guidance notes for employers to consider how best to apply these principles to their business. Factors to consider include basic pay, type of role (distribution between front of house and backroom workers), seniority or level of responsibility. When deciding how to allocate tips, employers should be careful not to indirectly discriminate against any particular protected group who are inadvertently put at a disadvantage. To be transparent, employers should ensure that there is a well-publicised policy on allocation, setting out the factors for distribution.
Tronc
One way of ensuring a fair and transparent method of tip distribution would be using an external troncmaster. Tronc schemes are designed to ensure fairness in the allocation of tips and (as long as the scheme is managed independently from the employer) has the added benefit of being exempt from national insurance deductions by both the employee and the employer, meaning a greater percentage of the tip collected ends up in the pocket of your employees.
Penalties for non-compliance
If an employer fails to comply with the Act workers can bring a claim in the employment tribunal for a failure to distribute or for a failure to distribute tips quickly enough. Most employment tribunal claims have to be brought within three months however, the time limit for claims for non-compliance with this Act are comparatively long and must be made within 12 months of the failure to comply or the last occurrence in a series of failures.
The tribunal may award compensation to a claimant of up to £5,000, and the employer may be obliged to pay the same compensation to any affected workers, not just the worker who made the claim for non-compliance. The award could also be up lifted by up to 25% if the employer has unreasonably failed to follow the ACAS code on disciplinary and grievances when dealing with any complaints.
Workers can also bring a claim where an employer fails to have a policy on tips or to have kept suitable records of tip allocation. This claim must be made within three months of that failure. The tribunal can award £5,000 to compensate the affected worker for any financial loss they have incurred as a result of the failure to have a tips policy or suitable records of tip allocation. This can also be uplifted by 25% for failure to follow the ACAS code on disciplinary and grievance.
How to be prepared?
In readiness for the Act on 1 October 2024, employers should:
- Review their current working practices on tips;
- Consult with their employees on tips to ensure any concerns or issues are understood and minimise the risk of discrimination;
- Put together a tips policy which outlines how their business will allocate tips fairly and transparently; and
- Make sure all workers have seen the tips policy, including as part of the induction process for new starters remembering that this includes agency workers.
Tune in to the S&B People Podcast where we consider the detail of the new regime, available here.
Charlotte Gunn