New rules on distributing tips: Understanding the Employment (Allocation of Tips) Act 2023

PostedJuly 1, 2024

On 1 October 2024, the Employment (Allocation of Tips) Act 2023 will come into effect, introducing significant changes to how tips are managed and distributed in the hospitality industry.

This legislation aims to improve fairness by mandating that all tips, gratuities, and service charges are allocated fairly among employees. The new rules address longstanding concerns about the retention and distribution of tips by employers, ensuring transparency and fairness.

Summary of the New Rules

1. Fair Distribution: Employers must distribute all tips, gratuities, and service charges fairly and equitably among workers. This includes both cash and card tips. The distribution has to be fair and transparent with due regard to a Code of Practice and can include a tronc arrangement.

2. No Deductions: Employers are prohibited from making any deductions from tips, including administrative fees. The only exceptions are those required by law (e.g., tax).

3. Transparency: Employers must clearly communicate their tipping policies to employees and customers, ensuring transparency in how tips are allocated.

4. Record-Keeping: Employers are required to keep detailed records of all tips received and distributed for a period of three years. These records must be made available to employees upon request.

5. Written Policy: A written policy outlining the distribution of tips must be in place and accessible to all staff members.

6. Service Changes: Any service charges added to bills must be treated as tips and distributed accordingly.

Impact on Employers

If you are an employer affected by the rules, you will likely need to make some changes in how you manage tips. It will be crucial that you comply with these regulations to avoid potential penalties and to maintain a fair working environment.

Here are the key impacts with some suggestions for procedures that affected employers will need to consider:

1. Review and Update Tipping Policies: Employers will need to review their current tipping policies and make sure they line up with the new rules. They will need to establish a clear and equitable distribution method that is communicated to all employees.

2. Implementing Transparent Systems Employers should implement transparent systems for tracking and distributing tips. This might involve using software solutions that automatically record and allocate tips based on predefined criteria.

3. Employee Training: Training sessions should be conducted to inform employees about the new rules and how tips will be managed. This ensures everyone is aware of their rights and the procedures in place.

4. Maintaining Accurate Records: Employers must establish robust record-keeping practices to document all tips received and distributed. These records should be maintained for at least three years and be readily accessible for inspection by employees or regulatory bodies.

5. Communicate with Customers: Clearly communicate tipping policies to customers, possibly through notices on menus or at the point of sale. This transparency helps manage customer expectations and ensures they understand how their tips will be used.

6. Regular Audits: Conduct regular audits to ensure compliance with the Act. This helps identify and rectify any discrepancies or non-compliance issues promptly.

By implementing these procedures, employers can not only comply with the new rules but also foster a fairer and more transparent working environment. This can enhance employee satisfaction and trust, ultimately benefiting the overall business.

If you need any help with the new rules or applying the Code of Practice, please feel free to get in touch and we will be happy to help you.

See: https://www.gov.uk/government/consultations/distributing-tips-fairly-draft-statutory-code-of-practice/draft-code-of-practice-on-fair-and-transparent-distribution-of-tips-html-version