Unfair tipping practices have been the subject of plenty of media coverage in recent years after an investigation in 2015 revealed that many business owners were withholding tips from employees. The Employment (Allocation of Tips) Act 2023 aims to eliminate unfair tipping practices and ensure compliance in the workplace.
Under the new law, all tips must be distributed fairly among workers without any deductions. This ensures that the people providing excellent service receive their rightful earnings. For businesses in the hospitality sector, understanding and complying with the Employment (Allocation of Tips) Act 2023 is essential to avoid legal consequences.
New Rules and Definitions Under the Employment (Allocation of Tips) Act 2023
From 1st October 2024, the Employment (Allocation of Tips) Act 2023 will come into force to ensure employers allocate all “tips, gratuities, and service charges” in a fair and transparent way to workers. These new rules will cover tips received through various methods, including service charges added to the final bill or cash tip jars.
Businesses will no longer be able to keep tips from their staff, even if they intend to reinvest them back into the business. The legislation classifies tips as either employer-received (e.g. card payments) or worker-received (usually cash), and any TRONC system used must clearly outline how tips are managed within the business. This is crucial for HR compliance in the hospitality industry, as improper handling of tips could lead to Employment Tribunal claims.
Who Does the New Law Affect?
The Tips Act will apply to protect all employees and workers, including some agency workers. Where tips are payable to an eligible agency worker, the principal (e.g. the agency) may instead pay the tips to the agent, who is then responsible for paying the worker in full by the end of the month following the month in which the tips were received. HR departments need to ensure they have the correct policies in place to manage this process efficiently.
Fair Allocation of Tips
The Act imposes a duty to ensure that all qualifying tips, gratuities, and service charges are allocated fairly among workers. While the legislation does not define what a “fair” allocation is, employers must ensure that their policies are transparent, consistent, and non-discriminatory. HR policies around tips should avoid unlawful discrimination and provide clarity on how tips are distributed among workers.
If you operate a business with multiple locations, it’s important to note that tips must only be allocated to the staff at the specific venue where they were earned and cannot be shared across different sites.
Payment and Record-Keeping Requirements
Under the new law, payment of tips must be made in full and no later than the end of the month following the month in which the tip was received. For example, if tips are received in June, they must be paid by the end of July. Employers are encouraged to review their TRONC system and ensure compliance with the new legislation. HR departments should keep detailed records of tips received and paid, as workers can request information on their employer’s tipping records.
Additionally, if tips, gratuities, and service charges are received more than occasionally, employers are required to maintain records for a period of three years, starting from the date the tip was paid. Keeping accurate records is not only good HR practice but also vital for avoiding potential Employment Tribunal claims.
Written Policy on Tips
Employers who handle tips regularly must implement a written policy on how tips are allocated and distributed. This policy should cover:
- What constitutes tips
- How tips are allocated and distributed
- Information on whether the employer requires the customer to pay service charges
A written policy ensures transparency and compliance with HR regulations under the new law.
Potential Employment Tribunal Claims
Employers who fail to comply with the new rules could face Employment Tribunal claims. There are two main time limits for workers to bring claims under the new Act:
- Workers have up to 12 months from the date of non-compliance to lodge a claim for failure to allocate or pay tips in accordance with the Act.
- If an employer fails to comply with obligations such as having a written policy, keeping records, or providing tip records, workers have 3 months to bring a claim.
The Employment Tribunal may order employers to make payments to workers and potentially award compensation of up to £5,000 for financial losses suffered.
Top HR Tips to Prepare for the New Legislation
- Implement a written tip policy: Ensure your business has a clear, compliant policy that outlines how tips, gratuities, and service charges are handled.
- Communicate with your staff: Inform your employees about the changes in tipping practices and how tips will be distributed.
- Train supervisors and team leaders: Staff responsible for handling tips should be trained on the new requirements to ensure compliance.
- Review your TRONC system: Ensure your TRONC system is compliant with the new rules and obtain a copy of the tipping policy from your provider.
- Update your HR policies: Ensure that your HR policies and procedures around tips are updated to comply with the new legislation.
- Keep accurate records: Maintain detailed and accurate tip records for compliance with the law and to address any potential worker requests or legal challenges.
How we can help
At Bhayani Law, we specialise in helping businesses navigate complex employment legislation. Our team can assist you in creating a compliant tipping policy, ensuring your TRONC system meets the new legal standards, and offering expert guidance to protect your business from potential Employment Tribunal claims. Contact us today for tailored support at 0333 888 1360 or email [email protected]
