The new Employer (Allocation of Tips) Act 2023 – what does this mean for employers?

On 1 October 2024, the Employer (Allocation of Tips) Act 2023 (“the Act”) came into force introducing a legal obligation on employers to distribute qualifying tips, gratuities and service charges fairly and transparently between workers and agency workers without unauthorised deductions.

What is a qualifying tip?

A qualifying tip, gratuity or service charge are tips either received by employers or tips received by workers but subject to the control of their employer.

For example, a tip received by an employer could be discretionary service charge added at the end of a customer’s bill. A worker-received tip that is subject to the control of their employer could be a cash tip that is given directly to the worker, but the employer exercises control over that tip because it has a policy in place whereby cash tips are distributed at the end of a shift equally between all those that have worked that day/night.

How should tips be allocated?

The Act states that qualifying tips need to be distributed fairly and transparently. However, fairly does not necessarily mean equally. The Act is silent as to fair distribution, but the Code of Practice on Fair and Transparent Distribution of Tips (“the Code”) states that employers can consider a number of factors including:

• Seniority;
• Type of role/work;
• Basic pay;
• Hours worked during the period when tips are received;
• Individual and/or team performance;
• Length of service with the employer; and
• Customer intention.

To ensure transparency, employers should have a policy that sets out how tips are allocated. The policy should be easily accessible for inspection in the Employee Handbook by workers and agency workers. Employers should regularly review their policy to ensure that it remains fair and consult trade union representatives or employees to ensure it is transparent and clear.

When do tips need to be paid by?

Any tips received will need to be paid to the worker at the end of the following month after the tips were received. In the case of agency workers, employers will need to ensure that the companies employing the agency workers are paid by the end of the following month after tips are received so that they can distribute the sum to their agency workers the following month.

For example, any tips received on 31 October 2024, would need to be distributed by 30 November 2024.

Are there any other obligations?

Employers will need to keep a written record of all qualifying tips received and how they have been allocated to workers and agency workers for a period of three years. Failure to do so would be a breach of the Code.

Workers have the right to make a written request (limited to one request per three-month period) to view the written record.

Do workers have the right to issue any claims in relation to the allocation of tips?

Workers have the right to issue a claim in the employment tribunal for the failure to allocate qualifying tips fairly or failure to distribute them within the specified time frame.

Workers have 12 months beginning with the date of failure to comply, or the date of the latest failure to comply if there is a series of failures to issue a claim.

If a claim succeeds, an employment tribunal can order that the amount owed be paid, in addition to compensation up to a maximum of £5,000.

For further information on the Allocation of Tips Act 2023, including advice for employers on preparing a policy to ensure compliance with the new Act, or to discuss a potential employment law or discrimination claim, please contact our specialist employment solicitors on 0207 3950 5234 or info@rllaw.co.uk. We are ranked as a ‘Leading Firm’ in the Legal 500 and Chambers and Partners independent guides to the UK Legal Profession.

8 November 2024.