How tips are divided and shared among staff in restaurants and bars is being overhauled in 2024.
The new law, which has been approved under the Employment (Allocation of Tips) Act 2023, will mean that all workers will be legally entitled to keep their tips. This includes service charges and gratuities.
This effectively means approximately an extra £200 million a year will go to the 2 million UK workers, as they will now be able to keep tips, gratuities and service charges that would have otherwise been deducted.
What is the Employment (Allocation of Tips) Act 2023?
The Act centres on ‘fairness’ of tip allocations, and while ‘fairness’ isn’t defined in the Act, it will be within a statutory Code of Practice that participants will agree upon. It is likely that a draft Code of Practice will be ready towards the end of the year, and the Act itself will come in to force mid-2024.
At present, any tip, gratuity, or service charge belongs to each relevant business and that business can then determine the amount, if anything, it passes on to its staff.
Payments by card
As more and more people are paying for services electronically, increasingly money is going directly to the business and not to its staff. Currently, there is nothing in law to ensure such tips, gratuities or service charges are passed on to their workers.
In many businesses, cash tips, etc can be paid directly to the worker, and is thus deemed to be the workers legal property, however, even in these cases, some employers require such tips to be pooled or returned to the employer.
Many workers depend on their tips to complement their wages; however, it is the case that some businesses still do not fairly allocate them.
- Employers must pay 100% of the tips and service charges they receive to workers by the end of the next month, following payment by the customer.
- Tips can only be subject to tax and National Insurance deductions.
- Employers must provide policies to explain their tipping practices and must apportion the payments fairly and transparently.
- Records should be kept for three years from the date that tips are received.
- Workers can request information regarding employers’ tipping records.
- Failure to comply will enable workers to bring Employment Tribunal claims against their employers.
Rights of Employees
The Act allows a worker to make a claim to an Employment Tribunal against their employer in the following circumstances:-
- failing to allocate all tips, gratuities, and service charges to workers
- failing to set out how and when tips, gratuities and service charges must be dealt with – no later than the end of the month following the month in which the customer paid it;
- failing to set out when and how to make payments;
- failing to have a written policy and maintaining records of tips received.
In most cases, a worker must make a claim to a Tribunal within a three-month period which starts with the date of the perceived failure. The Tribunal does have a certain discretion to increase the time limits in some circumstances.
If an Employment Tribunal finds in favour of the worker, it may order the business to pay a sum of up to £5,000, which is deemed to be appropriate to compensate for any financial loss. It may also require any employer to comply with the requirements to create a written policy and to maintain and provide records.
It is important to stress that the rules stated above will only take effect when the Act actually becomes law next year.