The new Allocation of Tips Act was passed on 2 May 2023, but its provisions are not in force yet. It is expected to come into force in May 2024, so we look at what it aims to achieve and what will be required to comply with it.
What does the Act aim to do?
The Act aims to ensure that tips and service charges are shared fairly amongst workers. As electronic payment becomes predominant and fewer tips or gratuities are given direct to workers in cash, the government felt it necessary to fill a gap in the law by supporting the introduction of measures to ensure that gratuities and service charges are fairly distributed.
It is expected that a Code of Practice will be introduce in the near future to add further detail about practical measures.
New obligations on employers
When the Act comes into force, the principal obligations on employers will be as follows:
- Allocation of “qualifying tips” to workers: “qualifying tips” are (i) those received by the employer e.g. a service charge added to a bill; and (ii) those received by the worker over which the employer has control e.g. under a policy requiring all tips to be given up to a central pot controlled by the employer.
- Fair allocation: qualifying tips must be allocated fairly between workers – this is expected to be covered in more detail in the Code of Practice.
- Prompt payment: qualifying tips must be paid to workers by the end of the month following the month in which the customer made the payment.
- Written policy: employers must have a written policy on tip allocation, except where tips are paid on an occasional and exceptional basis. The policy must be made available to all workers.
- Maintain records: records of qualifying tips and their allocation must be kept for three years. Workers will have the right to request information about the employer’s records and employers will have 4 weeks to respond.
Interaction with tronc systems
If a business operates an independent tronc system e.g. a system operated by a third party or by a member of staff appointed as troncmaster with power to allocate tips between workers, it will be considered to be in compliance with the Act provided that it has made arrangements for fair allocation – again on this point we await to see how the Code of Practice will deal with the issue of fairness.
Potential new claims by workers
Workers will be able to bring an Employment Tribunal claim if there is a failure by their employer to comply with their obligations to allocate tips fairly or to pay them on time.
Unusually, the time limit for making such claims is 12 months from the date of the employer’s breach, as opposed to the usual 3-month time limit for most employment claims. The Employment Tribunal can provide various remedies, including:
- an order that the employer revise its tip allocation;
- a recommendation regarding tip allocation; and
- an award of compensation of up to £5,000 per worker.
Failure by the employer to comply with the Code of Practice can be taken into account by the Tribunal.
The Act also amends the Employment Rights Act 1996 to allow a claim for tips to be brought as a claim for unlawful deduction from wages.
What happens next?
The Government will be carrying out consultation on the Code of Practice and we will keep you informed as this progresses.