Rules on how tips, gratuities and service charges are fairly distributed among workers come into force today (1 October) in England, Scotland and Wales.
The Employment (Allocation of Tips) Act 2023 amends the Employment Rights Act 1996 by inserting new sections to create a statutory obligation on employers to allocate tips to workers without deductions.
On Friday, the Department for Business and Trade published further guidance for employers including clarification that tips cannot be pooled across multiple sites or branches and reminder that businesses need to take account of agency workers when considering the distribution of tips.
Tessa Rodgerson, senior associate at Knights law firm, said: “Relevant businesses will now need to have a written tipping policy in place, give workers the right to request a copy of their tipping records, and the legalisation also enables workers to bring claims in an employment tribunal if they believe they are not receiving the tips they are entitled to.
“Here, employers may be forced to revise the allocation of tips previously made, pay compensation of up to £5,000 for any financial loss suffered by the worker, and, potentially, make payments to other workers too. This could result in significant sums being paid to all affected workers at a pub or restaurant for example.”
In July, the new government said it would introduce “further measures” on tipping (potentially in the Employment Rights Bill to be tabled in Parliament next week) after it published a new statutory code of practice on the fair and transparent distribution of tips, gratuities and service charges.
Allocation of tips
Tipping law introduction delayed until October
Statutory code published on distributing tips fairly
Tipping point: where employers stand on gratuities and service charges
Where tips are left more than “occasionally”, such as in restaurants and hairdressers, employers are required to have a written tipping policy, which has to be made available to all staff, regardless of whether they are employed or engaged by them directly, or hired through an agency.
Last week’s additional guidance confirmed that employers are responsible for deciding – and justifying – which roles they treat as being in-scope for the allocation of tips. They should incorporate all involved in providing direct service to customers.
It includes a simple, model tipping policy, a model letter for workers to request their tipping record, and a template tipping record for an employer to respond to such requests.
“Primarily, the legalisation will also put an end to controversial practices, such as deducting ‘administrative fees’ or using tips to supplement managerial salaries,” said Rodgerson.
Employer flexibility on allocation of tips
She added: “The government’s code of practice gives employers flexibility when deciding how to allocate and split tips, as long as fairness is maintained. Employers are not required to allocate the same proportion of tips to all workers, so long as they can demonstrate some kind of fair rationale for their decision-making.”
Rodgerson recommends employers consider how they plan to allocate tips and to consult workers and seek their agreement that any proposed split is fair.
“Employers may also have legal or contractual requirements to engage in formal collective consultation, if the new tipping practices will involve making widespread changes to terms and conditions, for example,” she said.
“It’s also important to consider whether employers want to engage an independent tronc operator to manage and allocate tips on their behalf, although it should be stressed that employers remain liable for the fairness and transparency of any outsourced tipping scheme.
“Employers may also wish to consider appointing an appropriate person in the business to take responsibility for dealing with worker’s requests for tipping records.”
Agency workers’ tips
The government has said that when tips are distributed to agency workers, this may be processed through a regular payroll cycle, or through separate payments of tips made via the employment agency, or directly to the worker.
“This does not necessarily mean that agency workers should always receive an equal (or any particular) share of the tips,” states the guidance, “as what is fair varies depending on the specific circumstances of the industry and employer. But it is intended that agency workers are not unduly disadvantaged solely by virtue of being engaged through an agency.”
If employers think they can continue to get away with failing to give workers their tips or docking their pay they need to think again. Unite will use every avenue to ensure our members secure pay and tip justice” – Sharon Graham, Unite
Eilidh Wood, an associate Burges Salmon, said: “The implementation of the Employment (Allocation of Tips) Act 2023 has been welcomed by many unions across the UK, including Unite, which has launched its Fair Pay, Fair Tips campaign as part of which it plans to ‘name and shame rogue employers who try to ignore or distort the new legislation’.
“The Act opens up employers to new potential claims in the employment tribunal. Workers, including agency workers, will be able to make a complaint to the tribunal where their employer (and/or agent) has breached their statutory obligations under the new Act. An employer could face a sizeable sum of up to £5,000 in compensation per worker where they are found to be in breach of the new obligations. The Act also widens the scope for potential claims for unlawful deduction of wages claims, as it incorporates tips in the definition of wages.”
In July, Unite general secretary Sharon Graham said: “Unite is passionate in its support for hospitality workers and it will leave no stone unturned in supporting our members who are facing exploitation by employers.
“If employers think they can continue to get away with failing to give workers their tips or docking their pay they need to think again. Unite will use every avenue to ensure our members secure pay and tip justice.”
Failures of tip distribution or information
If a complaint to the employment tribunal is based on a failure to comply with the requirements surrounding how and when tips are distributed, it must be typically presented within 12 months of the most recent failure to comply.
Any time required to consult Acas for the purposes of conciliation does not count towards the 12-month limit – longer than the usual time limit for claims to the employment tribunal.
If the tribunal finds a complaint is well founded, it can order the employer to either revise a previous allocation, make a non-binding recommendation on a previous allocation, or order the employer to pay a worker or workers. This can include other workers who have not made a complaint.
If the complaint is based on a failure to provide a written tipping policy and tipping records, it must typically be presented within three months.
The tribunal can also award compensation of up to £5,000 to the worker to compensate for financial loss.
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