To Tip Or Not To Tip? How The Employment (Allocation Of Tips) Act 2023 Will Impact The Hospitality Industry
Author: Sam Evans
Key Contact: Claire Knowles
What is the Employment (Allocation of Tips) Act?
From 1st October 2024, the Employment (Allocation of Tips) Act (“the Act”) will enter into force following parliamentary approval. The legislation intends to prevent businesses in the hospitality sector from unlawfully withholding tips and service charges from their employees, workers, and agency workers.
The Act includes the following key obligations:
- pass on all tips and service charges to workers without deductions, except in limited circumstances, such as deduction of tax;
- a requirement to allocate tips in a fair and transparent manner;
- if it is fair to do so, the employer may pay the tips over to an “independent tronc operator” who will allocate them to workers;
- any organisations that pay qualifying tips, gratuities, and service charges on more than an occasional and exceptional basis will need to have a written policy setting out how those tips are dealt with and make the policy available to all workers; and
- maintain a record of all tips paid at their place of business and their allocation to each worker (and each worker has the right to request access to this).
For the moment, the Act does not cover more casual tipping practices where tips are paid directly to workers in cash, or pooled by the workers themselves, and not paid to their employer. However, it would apply where such tips are subject to employer control (i.e. if the employer directed its staff to distribute such tips equally amongst themselves).
Workers will be able to bring a claim before an employment tribunal where there has been a failure to comply with any obligations regarding allocation or payment of qualifying tips. The time limit to bring such a claim is 12 months from the date of the breach of the obligations. The tribunal may order the employer to pay compensation of up to £5,000 for any financial loss suffered because of the breach. A worker may also bring a claim if an employer fails to comply with the duty to maintain a written policy but the time limit for this will be 3 months.
How will the statutory Code of Practice impact the hospitality sector?
Following passage of the Act through Parliament, the government confirmed that it would lay before Parliament a statutory Code of Practice (“the Code”) to promote best practices in how to distribute qualifying tips, gratuities, and service charges.
On 22nd April 2024, the government published the Code.
The Code covers four main areas:
- qualifying tips and qualifying workers;
- the factors and methods relevant to fairness;
- transparency; and
- addressing problems.
In terms of fairness, the Code explicitly recognises that the obligation to fairly allocate tips does not necessarily require employers to allocate the same proportion of tips to all workers. Indeed, there may well be legitimate reasons for such differing allocations, but any employers should duly consider all staff and use a clear and objective set of factors. The Code also sets out an illustrative checklist of factors to determine.
Interestingly, the use of tipping apps to allocate tips would appear to be a bit of a grey area. The Code contemplates that such apps would be outside the scope of the Act. However, this is by no means clear and employers should consider very carefully if any tipping app they use falls outside the scope of sections 27C(3)(b) and 27C(9) of the Act and the effect this has on app fees.
Non-compliance with the Code will not itself give rise to a claim, but it will be admissible in evidence for employment tribunal proceedings.
How have organisations reacted to the Act?
Recently, a London restaurant chain announced it would be testing a new policy whereby it would not allow customers to tip by card and would instead introduce an optional “brand fee” which would not be shared among staff. Staff wages will rise by 19% to compensate for the loss of tip allocation.
At the moment, this new policy is being treated as a trial and the restaurant will reach a firm decision on whether to continue with the policy in June 2024.It remains to be seen whether other restaurants will adopt such practices moving forward.
Comment
Given that the Act’s entry in force has now been delayed until 1st October 2024, we would recommend that organisations comprehensively plan how they will implement the requirements of the Act and update their policies as necessary to avoid any potential future claims.
If you would like to seek expert advice about the provisions of the Act or the Code, or would like support drafting your business’ tipping policy, then don’t hesitate to contact Acuity Law’s employment team.
