Allocation of Tips

The Employment (Allocation of Tips) Act 2023 Makes It Unlawful To With-Hold Tips

The Employment (Allocation of Tips) Act 2023 amends the Employment Rights Act 1996 to insert new legal obligation on the hospitality sector. The Act makes it unlawful for businesses to hold back tips and service charges from workers. Employers will have to distribute tips in a fair and transparent way and keep records of how tips have been dealt with. Workers will have a new right to request more information about their tipping record and such requests must be responded to within 4 weeks. Businesses will also have to have a written policy on dealing with tips and workers will be able to bring employment tribunal claims if their employer has not dealt with tips correctly.

The Secretary of State for Trade and Business will be drafting a new Code of Practice upon which there will need to be consultation. The Code will replace the existing voluntary code and will set out the details of how the Government expects employers to implement the scheme.

UPDATED 21 August 2024
The new Labour government have pledged to ensure workers receive their tips in full. This seems to be a commitment to continue with the Allocation of Tips Act, which is due to come into force on 1 October 2024.

What Is Covered By The Employment (Allocation of Tips) Act 2023?

The Employment (Allocation of Tips) Act 2023 creates a legal obligation on employers to allocate 100% of tips, gratuities, and service charges to their employees, without making any deductions. The Act also requires that these tips must be distributed at the premises in which they were generated.

Under The Employment (Allocation of Tips) Act 2023, agency workers cannot be excluded or disadvantaged simply because they are provided through an agency. Businesses must pass on the agency worker’s share of tips to the supplying agency, who are then required to pay those amounts to their workers within a month of receipt from the operator.

The allocation of tips should be processed no later than the end of the month following the month in which the tip, gratuity or service charge was paid by the customer.

A week means any period of seven days beginning with a Monday (and ending with a Sunday).

Implications on National Insurance and Income Tax

The new legislation requires 100% of the face value paid by customers to be distributed to workers with the exception of any statutory tax or National Insurance deductions required as a part of the normal payroll process.

How To Prepare For The Employment (Allocation of Tips) Act 2023

Employers in affected sectors will have to ensure, before the Act comes into force in May 2024, that the distribution of tips, gratuities and service charges between their employees is fair. The Employment (Allocation of Tips) Act 2023 proposes that this ‘fairness’ be judged in line with a new Code of Practice which will be introduced to supplement the legislation.

Look at existing payroll systems and practices on tips and work out what, if anything, needs to change.

The Employment (Allocation of Tips) Act 2023 also requires an element of transparency from employers in how they distribute their tips. Therefore, employers must create their own written policy for the allocation of tips between their workers – so long as it is in accordance with the Code. This affords an element of flexibility to employers to ensure the Act can be incorporated into their business model, while also applying it consistently to all their employees, including agency workers who are set to benefit in the same way as employees under this Act.

The Act also requires employers to keep a written record of how tips have been dealt with for three years from the date received. This will undoubtably aid in transparency and ensure compliance from the employer, as well as protect the employer from any potential claims against them by the employee with regards to distribution of tips.

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