We have already seen a number of changes to employment legislation and there are more heading our way. Keeping up to date on what is coming over the hill and preparing for such changes in advance will help employers manage these transitions with more ease as well as enable them to field any questions from their well-informed teams.

As of 1 October 2024, the Employment (Allocation of Tips) Act 2023 will be coming into practice which is going to have a huge impact on the hospitality sector especially. The purpose of the new legislation is to ensure that all workers receive their fair share of tips.

Although the legislation hasn’t come into force just yet, the Government have put together a draft Code of Practice which comes into effect on 1 July 2024. We have summarised the legislation below to support employers preparing for the introduction.

The Tipping Act

The new UK law on tips will require employers to distribute tips fairly amongst their workforce if they receive frequent tips and have control or significant influence over the allocation and distribution of tips. It will therefore become illegal for employers to invest tips back into the business or make deductions from tips (except for mandatory charges and tax deductions).

As well as tips, gratuities and service charges, payments can also take the form of items of monetary value such as vouchers, tokens, or anything which can be exchanged for money. In accordance with the new Act, it also doesn’t matter by what means the payment is received, whether it’s by card, electronically or cash tips.

Who does the Act apply to?

This new UK tipping law applies to all workers, those employed directly in any capacity by the employer, and agency workers. In the case of agency workers, the employer is required to distribute tips and pay them through the agency which they are engaged with.

The Tips Act 2023 does not apply to those who are self-employed. Businesses that do not control or do not receive tips on behalf of their workforce are out of the scope of the new legislation and the Code of Practice. Industries where tipping is a rarity are also exempt.

“Very professional service from very understanding people”

“The support we have had from MAD-HR has been invaluable.” Read the full review

MAD-HR Feefo Rating

The new legislation doesn’t indicate exactly how the employer is to distribute the tips amongst their workforce, but they have published key factors for employers to consider:

  • The types of roles and work available; should tips be distributed between front-of-house and backroom workers?
  • Basic pay and how workers are engaged.
  • What are the hours which each worker works when the tips are received?
  • Individual or team performance levels.
  • Seniority and the level of individual responsibility.
  • Length of service.
  • The customer’s intention.

Therefore, it is not required for employers to allocate and distribute the same proportion of tips to all workers; they simply must allocate the funds fairly.

Tipping Policy

Employers in the industry where tipping is frequent must introduce an easily accessible tips policy and within it, employers should specify how they plan on allocating and distributing their tips. Employers need to ensure that their policy in no way discriminates, either directly or indirectly. They are also required to make sure all workers are aware of the policy (including agency staff) so that they are aware of their rights and can effectively challenge the policy or the implementation if they consider it to be unfair.

Keep records

Businesses will need to maintain an accurate employer tipping record, which logs tips received and the allocation of those tips, for 3 years. Workers have the right to request access to this information.

Employers may decide to allocate the distribution of tips to an independent party known as a Tronc Operator. The Tronc Operator can be an independent person employed internally, or the employer can engage an external accountancy firm or payroll operator as an example. The employer needs to be confident that the person they appoint will operate fairly and without bias. If it’s found that the Tronc Operator has not been acting fairly, the employer has failed to comply with the Code of Practice.

Employers need to be aware that failure to comply with this new legislation could risk them being taken to an employment tribunal. Therefore, it is highly advised that employers make sure they are ready for the introduction of this new legislation on 1 October 2024.

If you would like to discuss how the UK law on tips will affect your business and the actions you need to take, please call a member of our team today.

Frequently Asked Questions

Useful questions and answers about “Employment Law Update: New UK Law on Tips from 1 October 2024”

What is the law on tips in restaurants in the UK?

Restaurants are likely to be significantly impacted by this legislation because tips are more common in the hospitality industry. Restaurants must follow the Statutory Code of Practice relative to the Allocation of Tips Act, to ensure the fair allocation of tips amongst their workforce.

Is tipping required by law?

No, tipping is not a legal requirement. Some places of work add a voluntary service charge to their bills; however, it is the consumer’s decision whether they do or do not pay this. Starting from 1 October 2024, industries where tipping is prevalent will be required by law to have policies and practices in place to ensure the fair allocation of tips amongst their workforce.

Is it against the law for employers to take tips?

Employers can take tips on behalf of their workforce; however, they must then distribute the tips out amongst their workforce fairly. Employers must not make deductions from the tips unless it’s for statutory purposes such as tax deductions.

How and when should employers pay tips to their workers?

Employers should keep a record of tips received and then determine how to fairly distribute the tips for that month in line with their policy. All tips must be distributed to their workers by the end of the month following the month in which the tips are paid by the customer. For example, a tip received on 24 June would need to be paid to the worker by 31 July at the latest.

Photo by Sam Dan Truong on Unsplash