Updated Legislation
Following a consultation, a Code of Practice will be developed to provide businesses and workers with advice on how tips should be distributed. Additions will be made to the ‘Employment Rights Act 1996’.
Back to Industry Insights
Fair Payment of Tips to Become Law
The Employment (Allocation of Tips) Act 2023 recently received Royal Assent, requiring employers to ensure all tips, gratuities and service charges paid by customers are allocated fairly between workers – a large impact on the hospitality and catering sector.
An enforcement date has not been announced yet, however, employers need to prepare as soon as possible, especially if you’re currently keeping tips as a business practice to pay other admin costs as this could impact your finances.
Consequences of not Complying with the New Tips Legislation
For many years, the practice of employers taking a proportion of workers’ tips has been viewed as unfair and immoral. Businesses that continue to withhold workers’ tips will gain bad reputations among staff, which may lead to workers taking grievances to employment tribunals.
An employment tribunal can grant a worker compensation of up to £5,000 if it finds that an employer’s tipping practice is unlawful and can also grant compensation to other affected workers even if they haven’t brought a claim themselves. Staff could also submit complaints up to 12 months after an issue has occurred.
Workers’ rights would also entitle them to request information relating to their employer’s tipping records, which is why it will be important for companies to draft gratuity policies and keep records of how all tips have been dealt with in the last three years.
Helping you to prepare for the new tips legislation
The official date the legislation would become law should be confirmed later this year, and employers would need to create gratuity policies outlining how tips are distributed and whether tipping is encouraged by customers. Better records would also need to be kept of how all tips are dealt with.
Once a Code of Practice is developed and an enforcement date has been announced, it’s recommended to effectively communicate and explain the upcoming changes to workers across your business to avoid any future conflicts, and to reassure everyone that you’re aware of the new obligations.
We welcome the new legislation, as it could see an increase in people wanting to work in hospitality roles. As a trusted recruitment agency, we’ll work with our clients to effectively communicate these changes to our Blue Arrow candidates and help implement any changes to payment processes. If you’re new to Blue Arrow, contact us to learn more about our services.
What are the key changes to how tips will be distributed?
Which tips are distributed?
Tips would include employer-received tips (e.g. paid by a customer as part of payment) as well as worker-received tips (e.g. amounts given to workers by customers directly).
Tip amounts paid to workers should be the actual amounts paid by customers. Any unauthorised deductions (a deduction that’s not required or authorised by law) are to be disregarded when determining the amount paid by the customer – this also includes deductions for any breakages or accidents caused by a worker during a shift.
Who receives tips?
Tips must be fairly distributed amongst all workers at a place of business (non-public and public-facing staff), which may also mean staff don’t get what they individually earn. HR and legal experts have advised that the new legislation won’t require sharing tips across different outlets of the same business. Any agency workers would also be entitled to a share of the tips.
How to pay tips to workers?
If amounts are not paid to workers in cash or deposited in their bank accounts, it can be paid as a ‘qualifying tip’ in the form of a voucher, stamp, token or similar which is of a fixed value expressed in monetary terms, and is capable of being exchanged for money, goods or services.
If using a recruitment service provider like Blue Arrow to pay agency workers, tip amounts could be paid to the agency who will subsequently transfer tips to all relevant workers.
When tips need to be paid by?
Employers need to ensure that all tip payments are made by no later than the end of the month, following the month in which the tip was paid by a customer.
