Tipping is common in the hospitality, leisure and service sectors and whilst restaurants, hotels and bars make up the largest proportion of the sector, tipping is also an important feature in industries such as hairdressing, casinos and private car hire. You may have heard us mention the Employment (Allocation of Tips) Act 2023 (also referred to as “the Tipping Act”) a few times over the year which was due to come into effect on 1st July, but was then announced in May that it would be pushed back to 1st October. The Act looks to reform the way tips and gratuities are distributed amongst workers in these sectors, and extends to agency workers too. Businesses will require policies and processes in place to be compliant with the new legislation.
What is the Tipping Act?
The Tipping Act aims to ensure that all tips, gratuities and service charges provided by consumers in recognition of good service and hard work are allocated in a fair and transparent manner to workers as intended. A Code of Practice has been published by the Department for Business and Trade and, when the Act comes into force in October, will be taken into account in any tribunal claims on the matter.
It’s important to note that the Act applies to tips made both by card and in cash, as well as via apps and other methods. Non-monetary tips may also be included under the act in certain circumstances if they can be exchanged for money, goods or services like vouchers, stamps or tokens, such as a worker in a casino receiving a casino chip.
Who does it affect?
The scope of the Tipping Act may extend further than one might first assume. Whilst it will have the biggest impact on the hospitality, leisure and service sectors, the Act can apply to all businesses where employees and workers (including zero-hours and agency) receive tips, service charges or gratuities. It doesn’t, however, apply to the genuinely self-employed. In the case of agency workers, the Act applies to the hirer, who would make payment of the tip to the agency, who would be responsible for passing this on to the workers without unauthorised deductions.
If an employer receives and distributes tips, or has significant influence on how tips are distributed, then the Act will apply to their business.
If a worker receives and keeps a cash tip, or if the customer uses an app to digitally and directly tip a worker and bypasses the employer altogether, then the Act does not apply to the tip.
In short, if the tip has value, and the business has a say in how that tip is distributed, then it is covered by the Tipping Act.
What do we need to do?
Under the new legislation, employers will be required to:
- Pass on all tips and service charges to workers without deductions (except in very limited scenarios, such as deduction of income tax)
- Ensure that, where the employer has control or influence over their distribution, tips are distributed in a fair and transparent manner
- Take the Code into consideration when involved in the distribution of tips
- Maintain a written policy on how tips are allocated at their place of business and ensure that all workers are able to access this policy. A written policy would not be necessary where tips are received only occasionally and exceptionally, such as a clothing shop receiving tips a few times a year
- Maintain records of all tips paid, along with their allocation and distribution to each worker, at their place of business. These need to be maintained for three years and workers will also have the right to request access to some of this information. This information must be provided within four weeks of the request.
Employers must ensure that tips are paid no later than the end of the month following the month in which the tip was made, i.e. by the 30th November for a tip made on the 28th October.
Legal considerations
An employee has up to 12 months to bring a claim to an Employment Tribunal against their employer if they have failed to allocate and pay tips on time. Employees can also bring a claim up to three months after the employer’s failure to have a written policy or abide by its record-keeping obligation. In both of these situations, the tribunal may order compensation of up to £5,000, alongside other potential requirements.
In order to avoid the risks and costs of tribunal, it’s important to be proactive and ensure you have everything in place prior to the Act’s enforcement on 1st October. If you haven’t done so already, you may want to conduct an internal review of tip distribution practices, and it may be beneficial to consult with employees if making changes or creating a fair and transparent system. If you have existing policies or tips are covered in your employment contracts, then you will also want to ensure that these are updated to reflect the new requirements.
Summary
The Tipping Act applies to all businesses that have a say in how tips are distributed amongst its people, requires written policies and maintained records to be in place, with payments made without undue delay, regardless of whether the tip is made by cash, card or via some other means.
As always, we are happy to help and support you through our HR Support and Advice Service. If you have any queries, please don’t hesitate to get in touch on 01302 341344 or by emailing hrsupport@thecleargroup.com.
