Ever left a fiver at your favourite restaurant for your fabulous meal, or accepted yes to the gratuity on the card machine at your local hair salon?
In the past employers such as Cote have been called out on keeping entire service charges rather than paying it to their staff. Now one London restaurant chain is banning customers from paying tips by card and introducing a brand fee instead.
With new rules coming in from 1st July 2024, it is important to understand the new requirements around allocating tips to your workers.
From 1st July 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.
Businesses will no longer be able to keep tips from their staff, even if they are investing them back into the business.
The new legislation will cover all tips, gratuities, and services on which the employer exercises control and significant influence. From service charges added to the final bill or cash tip jar on the side, these could all be covered by the new act!
Who does the new law affect
The Tips Act will apply to protect 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 it to the agent instead of the eligible agency worker. The agent must then pay the full amount to the eligible agency worker before the end of the month after the month in which the agent is paid.
Fair allocation
The Act will impose a duty to ensure all qualifying tips, gratuities, and service changes are allocated fairly to workers.
The legislation does not define what a “fair” allocation would be but it does not necessarily mean giving everyone an equal share of every tip but need to make sure you have a fair, transparent, and consistent criterion in place.
Any employer should consider carefully the policies it implements for tips to avoid any form of unlawful discrimination when selecting and applying the factors for allocating and distributing tips.
Also if you have multiple sites, the tips must be allocated only to the staff at the specific venue and not paid to other staff at a different site.
Payment
Payment must be in full and no later than the end of the month following the month in which the customer paid the tip. For example, if tips are received in June they must be paid by the end of July.
Employers can organise an independent TRONC operator to allocate tips, so employers should make sure that their provider is compliant with the new rules and obtain a copy of the policy relating to rips and how they are allocated.
Contracts
Workers cannot waive their rights under the Tips Act and employers cannot make deductions for admin fees, card fees, or other costs. Therefore, the employer should review their contracts to make sure they are in line with the new act, as any attempts to authorise deductions around tips will not be effective.
Record keeping
Workers can request specific information regarding their employer’s tipping record.
If qualifying tips, gratuities, and service charges are paid on more than an occasional and exceptional basis the employer must keep a record for a period of 3 years beginning with the date on which the tip was paid.
Written Policy
If tips are paid on more than an occasional and exceptional basis the employer must have a written policy on how tips are dealt with.
This may include facts such as:
- What constitutes tips
- How tips are allocated and distributed
- Information on whether the employer requires the customer to pay service charges
Possible Employment Tribunal claims
With the new rules around tips, there is a possibility employers may be faced with employment tribunal claims if they do not comply.
Under the new act there will be two different time limits an Employer must be aware of for claims under this new act.
- A worker will have up to 12 months from the date of the employer’s non-compliance with the act to lodge a claim in the Employment Tribunal for failure to allocate and pay tips in accordance with the new Act.
- If an employer fails to comply with obligations such as having a written policy, keeping records, or providing tip records to a worker. A worker will have 3 months from the date of a failure to comply to bring a claim in the Employment Tribunal
An Employment Tribunal could make a declaration ordering the employer to make payments to its workers and possibly award compensation of up to £5,000 in respect of any financial loss suffered by the claimant.
The Secretary of State has issued a draft code of practice which when a finalised version is released, a tribunal will be required to take into account.
Within the current draft code, you should have a written tips policy and workers should receive a breakdown of how you distribute service charges, tips, gratuities, and cover charges.
Top tips to prepare
- Communicate with your staff any changes
- Train your staff who might be responsible for handling tips and reporting such as supervisors or team leaders.
- Review your systems to ensure you have an efficient process in place to manage tips
- Update your policies and procedures around tips
- Review your TRNOC system if you have one
If you need advice or need a tip policy drafted to handle these new changes for your workplace, please contact us on 0333 888 1360 or complete the enquiry form and we’ll get back to you as soon as possible.
