Allocation of Tips: A shake up in the hospitality sector
Key Contact: Claire Knowles
Author: Laura Spence
Earlier in the year, we saw legislation be passed which gave workers the right to receive 100% of tips, service charge and gratuities. This means organisations can no longer deduct any amount from these sums to cover other fees or charges. The Employment (Allocation of Tips) Bill was given Royal Assent on 2 May 2023 and as expected, became the Employment (Allocation of Tips) Act 2023.
The legislation is set to shake up the hospitality sector, being applicable to both public and non-public places of business and protecting all staff, including employees, workers and agency workers. The Government have said we could see £200 million going back into workers pockets.
The Act includes the following key provisions:
- An obligation on organisations to fairly allocate tips over which they exercise control or significant influence and pay them to workers in full within a month of the tip being paid by the customer.
- Where tips are paid on more than an occasional and exceptional basis, an employer must have a written record and policy, available to all workers, setting out how qualifying tips are dealt with.
- Employees have the right to request information about the employer’s tipping record.
On 31st July 2023 it was confirmed that a Code of Practice for the purpose of promoting fairness and transparency in the distribution of qualifying tips, gratuities and service charges will also be introduced. This is currently in draft but it set to provide useful guidance on how tips should be distributed.
Failure to comply with the Code will be admissible in evidence in employment tribunal claims. Up to £5,000 in compensation could be claimed if tips are not dealt with correctly. A consultation on the Code is expected later this year.
If a written policy is required, among other things, it should include how the organisation ensures tips are allocated fairly and whether they encourage customers to pay tips. The policy must be readily available on request, so it is important to have this ready to go!
The substantive provisions of the Act are expected to come into force in May 2024, but this date will be confirmed later in the year. In the meantime, we suggest organisations start to consider how they will maintain readily available records and what will be included in their policy.
If you would like assistance preparing for this change, from queries to policy drafting, please contact the Employment team.