The Employment (Allocation of Tips) Act 2023: A Fairer System for Tip Allocation

The Employment (Allocation of Tips) Act 2023 (“Act”) seeks to pave the way for a fairer distribution of tips, gratuities, and service charges paid by customers, ensuring that these funds are allocated to the workers who truly deserve them. With the Act receiving Royal Assent on 2 May 2023, it is scheduled to take effect in 2024, with the exact commencement date to be announced later this year.

Key Provisions

1. Application to Qualifying Tips: The Act applies to “qualifying tips”, which includes tips received directly by the employer or those subject to employer control.

2. Total Amount Allocation: Employers are obligated to distribute tips fairly, covering the entire sum of tips received. These tips should be shared among workers at the specific venue, and are subject to tax and national insurance contributions.

3. Timely Payment: Tips must be allocated and paid to workers by the end of the month following the month in which the tips were received.

4. Written Policy Requirement: Employers paying tips on more than an occasional basis must have a written policy outlining whether tips are encouraged in the workplace and how they will be allocated.

5. Record-Keeping: Employers in the same category (paying tips on more than an occasional basis) must maintain records of tips received from customers and their allocation for a three-year period. Workers can request these records in writing.

6. Right to Complaint: Workers have the right to lodge a claim in the employment tribunal if employers fail to adhere to the Act in tip allocation, written policy compliance, or record maintenance. Compensation for improper tip allocation is to be capped at £5,000.

What’s Next for Employers?

The Act is set to become enforceable in May 2024 and represents a significant step toward creating a more equitable system for workers who depend on tips, and it will be essential for employers to stay informed and compliant as the regulations take effect.

In the interim, the government is planning to draw up a code of practice that offers guidance to employers on tip allocation. While there are no immediate requirements, employers should start assessing their existing practices regarding tip allocation in preparation for the impending regulations, and prepare to establish a policy that outlines how tips will be allocated and to whom, as more detailed guidance is anticipated in this regard.

For expert guidance on navigating the intricacies of the Employment (Allocation of Tips) Act 2023 and ensuring compliance with the new regulations, employers can turn to Rahman Lowe Solicitors. As employment law specialists, Our team is well-equipped to provide tailored advice and support, and can help you understand the Act’s implications, establish compliant policies- addressing any challenges and wider implications that may arise in tip allocation.

Contact us today to ensure your business is prepared for the upcoming changes.