Allocation of tips in the hospitality sector: an update

New Legislation regarding allocation of tips in the Hospitality sector has been pushed back until October 2024

The new Employment (Allocation of Tips) Act 2023, which would make it illegal for employers to withhold tips from its workers or make any deductions before passing tips on, was due to come into force on 1 July 2024. The previous Conservative government had estimated that this legislation would allow workers across the UK to keep a total of £200m worth of tips each year.

Due to extenuating circumstances, the details of which are not clear, the Government has delayed the implementation of the new act, confirming that the new measures on tipping are expected to come into force on 1 October 2024 once parliamentary approval has been secured. However, the Government has also stated that it encourages all businesses to follow the new requirements immediately, before the new legislation comes into effect.

The legislation requires that the total amount of qualifying tips are allocated “fairly” between workers of the employer at that place of business. When determining what would be “fair”, the employer must have regard to the relevant code of practice which has now been updated and finalised and will come into force on the same date as the new legislation. The code of practice suggests consultation with employees regarding how it is proposed tips will be allocated could be a useful tool – such consultation may also assist employers with defending future claims from employees that the allocation of tips is not fair.

When considering tips received, they should be considered as the actual amount paid by the customer i.e. disregarding any deductions – this would include any card provider service charges or other deductions made by the employer. Any VAT paid would not be deemed to form part of a qualifying tip.

Under the new legislation, employers must also maintain a written policy (which is made available to all workers) setting out how they intend to deal with tips and to keep records of tips received and how they are allocated amongst the workers. The latter is likely to provide valuable evidence in the event that a worker brings a claim for breach of the new legislation. In addition, workers will be entitled to request information from their employers regarding tip allocation, which would likely assist them in bringing such claims.

The written policy must include the following info:

• whether the employer requires or encourages customers to pay tips, gratuities and service charges at the place of business;
• how the employer ensures that all qualifying tips, gratuities and service charges paid at, or otherwise attributable to, the place of business are dealt with in accordance with the legislation, including how the employer allocates qualifying tips, gratuities and service charges between workers at the place of business.

We would encourage all employers in the hospitality sector to familiarise themselves with the new legislation and Code of Practice in advance of the proposed implementation date of 1 October 2024 and take steps to put the required measures in place. Our Employment Team is well placed to assist in drawing up any new policies required and providing accompanying advice regarding employers’ obligations under the new Act.